Annual Report

Transcription

Annual Report

Annual Report 2012
Overview
Financial Highlights
Revenue
Underlying
operating profit 1
Underlying earnings
per share 2 3
£830.6m
£118.8m
36.1p
16%
£m
£m
1000
120
Pence
40
100
800
30
80
600
60
400
0
20
40
200
10
20
2010
2011
28%
30%
2012
Operating
profit
£107.6m
30%
0
2010
2011
2012
Underlying profit
before taxation 2
£103.9m
30%
Basic earnings
per share
Dividend per
share
30.3p
10.5p
23%
31%
0
2010
2011
2012
Profit before
taxation
£88.6m
27%
1 Underlying operating profit is before amortisation of
intangible assets acquired
2 Underlying profit before taxation and underlying
earnings per share are before amortisation of intangible
assets acquired and notional interest
3 Underlying earnings per share is based on the basic
weighted average number of shares in issue
Forward-looking statements
Certain statements contained in this Report, in particular the Outlook statements, constitute forward-looking statements. Such forward-looking
statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of Fenner, or industry
results, to be materially different from any future results, performance or achievements expressed or implied by such statements. Such risks,
uncertainties and other factors include, among others, growth in the commodity markets, general economic conditions and the business
environment.
1
Fenner PLC Annual Report 2012
Overview
Contents
10
14
21
22
23
27
Directors’ Report: Governance
The Board
Corporate Governance
Audit Committee Report
Other Statutory Information
29
31
38
40
Directors’ Report: Remuneration
Board Remuneration Report
43
Corporate Responsibility
50
7
9
Governance
TO BE RESPECTED AS THE
LEADING GLOBAL
PROVIDER OF LOCAL,
ENGINEERED SOLUTIONS
FOR PERFORMANCECRITICAL APPLICATIONS
Directors’ Report: Business Review
Chief Executive Officer’s Review
Strategy In Action
Q&A with Chief Executive Officer
and Group Finance Director
Operating Review
Risk Management
Principal Risks
Group Finance Director’s Review
Key Performance Indicators
Business Review
OUR VISION
1
3
5
Overview
Overview
Financial Highlights
Understanding Fenner
Chairman’s Statement
Remuneration
57
58
99
100
107
108
108
108
108
Financial Statements
Independent Auditors’ Report - Group
Group Financial Statements
Independent Auditors’ Report - Company
Company Financial Statements
Five Year Summary of the Group
Annual General Meeting
Dividend Information
Advisors
Financial Calendar
2
Overview
Understanding Fenner
Global presence
Operating profitably worldwide in two divisions
Underlying EBIT
Underlying earnings per share
Overview
Revenue
Pence
40
29%
34%
£831m
£119m
30
20
66%
71%
10
Engineered Conveyor Solutions
Advanced Engineered Products
0
2008
2009
2010
2011
2012
Oil & Gas Exploration Well Service Refineries LNG Office Equipment
Digital Printing ATMs
Power Generation Iron & Steel
Orthopaedics
Copper Construction Mineral Processing Medical
Thermal Coal Aerospace
Motion Control
Manufacturing Units
Sales & Service Branches
Manufacturing Units
Sales & Service Branches
49%
20%
Business Review
Markets
KEY
31%
% of Group revenue by destination
Governance
ECS Engineered Conveyor Solutions
Revenue
By markets served
£593m Revenue
71% of Fenner
£593m Revenue
44%
51%
2012
OEM (new customer capacity) vs aftermarket
By destination
18%
Mining
FENNER
ECS
71% of Fenner
Iron & Copper Ore
Infrastructure
Emerging Markets
Thermal Coal
Power Generation
Global Energy
64%
2012
26%
Remuneration
14%
COAL MINING
& HANDLING
Underground coal
Power stations and ports
Fire resistance critical
High/intense use
Driven by electricity demand
BULK MATERIALS
Predominately
aggregates
Driven by construction
and infrastructure
activity
23%
38%
EMEA
Americas
Asia Pacific
OTHER MINING
Predominately iron ore
Other hard rock mining
Highly abrasive
Driven by steel demand
OEM
REPLACEMENT
PRODUCT
Worn out
Damaged
Typical belt life
3-5 years
22%
(New Customer Capacity)
Mine expansions
New mines
SERVICE
Maintain / Manage
Install / Replace
Emergency repair
Monitor conveyor condition
Detect conveyor faults
Belt design, installation and conveyor structure field services - above and below ground
AEP Advanced Engineered Products
Revenue
By markets served
By destination
Medical
Oil & Gas
£237m Revenue
3%
20%
29% of Fenner
13%
2012
7%
MINING
AUTOMATION
Belts & rollers
Mining equipment
Roof supports
61%
23%
ATMs
Printing
Automation
15%
Seals/bushings
25%
6%
9%
Seals/hoses/belts
Seals/belts/rollers/hoses
Alternative energy
Green solutions
Power transmission
Motion control
2%
AGRICULTURE
FLUID POWER
Seals
Industrial
Mobile
3
16%
CONSTRUCTION
GENERAL INDUSTRIAL
TRANSPORTATION
Textiles/seals/hoses
Aerospace
Trucks
Construction equipment
Tile, brick, lumber
processing equipment
Americas
EMEA
Asia Pacific
Hydraulic sealing solutions
High performance
tyres and belts for
media transfer
Biomedical textile
structures
Seals and
application solutions
Well head service and
oilfield seals
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Overview
Chairman’s Statement
A SUCCESSFUL YEAR
IN MY FIRST FULL YEAR AS CHAIRMAN OF FENNER, I AM DELIGHTED TO
REPORT ON THE PROGRESS MADE IN THE YEAR. BOTH DIVISIONS OF THE
GROUP HAVE PERFORMED WELL WHICH HAS RESULTED IN A RECORD
FINANCIAL PERFORMANCE.
Financial highlights
Revenue increased by 16% to £830.6m with
predominantly strong demand levels from the
energy and mineral extraction sectors.
Underlying operating profit reached a record
level for the Group, advancing by 30% to
£118.8m. Operating profit also increased by
30% to £107.6m.
Underlying earnings per share increased by
28% to 36.1p and basic earnings per share
increased by 23% to 30.3p.
Free cash flow generated amounted to
£63.0m. From this, we were able to fund
£34.3m for acquisitions and return £18.0m to
shareholders in dividends whilst still reducing
debt. Our closing net debt was £97.7m (2011:
£101.8m).
In recognition of the increased quality of the
Group’s earnings and our confidence in the
future, the Board is recommending an
increase in the final dividend to 7.0p per share
which gives a total dividend for the year of
10.5p per share (2011: 8.0p), representing a
31% increase.
Overview
We have remained focused on our long-term
strategy and shorter-term goals and have
achieved significant progress in both areas.
In the Engineered Conveyor Solutions division,
we experienced strong trading conditions for
much of the year although construction
markets remained weak. Our southern
hemisphere and European operations
performed consistently well throughout the
year. In the latter months, we experienced
some slowing of order intake from the coal
sector in our US operation as a result of the
re-alignment of customer output with
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consumption following the extremely mild
winter and uneconomical pricing of natural
gas albeit coal stockpiles are slowly returning
to more normal levels with a recovery in US
natural gas prices and increasing US coal
export activity.
Our strategic initiatives have progressed well.
Following recent investments, global
manufacturing capabilities were leveraged to
meet customer demand patterns. In
December 2011, the acquisition of Allison
Custom Fabrication further strengthened our
position as the leading provider of engineered
conveyor solutions in North American
markets.
In the Advanced Engineered Products division,
growth was underpinned by strong demand
from the oil and gas sector and investment to
broaden our geographical coverage. The latter
includes initiatives to develop identified
growth markets, both organically and
acquisitively. In September 2011, the
acquisition of Transeals enabled greater
access to the Australian mining and oil and
gas aftermarket.
In September 2012, after the year end, three
bolt-on acquisitions were completed.
American Industrial Plastics complements
our existing capabilities and provides
specialist expertise in precision machining of
polymers. Norwegian Seals expands our
presence in oil and gas to the subsea sector.
Mandals, which produces lay-flat hoses,
provides high value added solutions to
customers’ needs in fluid handling markets.
In October 2012, we exchanged contracts to
acquire Australian Conveyor Engineering
("ACE") and expect to complete this
transaction at the end of November 2012.
ACE, which specialises in high capacity
Mark Abrahams
Chairman
conveyor systems to the mining sector,
furthers Fenner Dunlop's strategy of being
the supplier of choice for engineered conveyor
solutions in Australia.
People
During the year, we welcomed Vanda Murray
to the Board as Senior Independent Director.
Her strengths lie in sales and marketing,
particularly in organisations with a wide
geographical reach, which complements the
Board’s skills set.
At the forthcoming Annual General Meeting in
January 2013, David Buttfield will leave the
Board after 10 years. This includes extending
his tenure following the untimely and sad
death of David Campbell in 2010. On behalf of
the Board, I would like to thank David for his
valuable contribution.
I believe that our employees are critical to our
continued success. I would like to take this
opportunity to express my thanks to all our
employees around the world for their
commitment and dedication.
Governance
The growth, strength and resilience of Fenner
is built on the bedrock of strong governance
and high business standards. These
principles remain part of our fundamental
core values.
During the year, the Board reviewed our policy
on diversity which resulted in a Board
Diversity Statement being implemented. The
Nomination Committee considers diversity in
all forms when making appointments with the
best candidate being selected based on merit
regardless of gender, ethnicity or religious
beliefs. This philosophy on diversity runs
throughout the Group.
As a result of our investment programme over
recent years, Fenner is a much stronger and
more resilient business serving a more
diverse customer base. The fundamentals of
our core markets underpin healthy, long-term
growth, and we continue to be encouraged by
the number of identified opportunities for
sustained value creation.
Mark Abrahams
Chairman
Governance
To Fenner, conducting business in an
appropriate manner means delivering high
standards of health and safety to provide safe
working conditions, a respect for the
environment in which we work and behaving
with integrity. As an organisation, we believe
that being both a good neighbour and
employer and having a positive influence in
our communities will contribute to the
sustainability of our business.
We remain mindful of the current global
economic uncertainty. Given both anticipated
end market trends and the very strong first
half last year, we expect our performance to
be more heavily weighted to the second half of
the current year.
Business Review
A detailed review of Corporate Governance
is set out on pages 31 to 39
Overview
The Board has made several site visits around
the Group which included operations within
the USA, the Netherlands and the UK. These
visits have helped to broaden the nonexecutive directors’ knowledge of the Group’s
business.
Remuneration
The Group Health & Safety Management
System Framework is embedded worldwide
and facilitates a continually improving health
and safety culture. Concern for the Group’s
impact on the environment is a fundamental
part of our corporate business strategy as we
contribute towards a sustainable future. Our
Code of Business Conduct sets out the
behavioural standards expected of all
employees. The cornerstones of the Code are
fairness, honesty and integrity.
A detailed review of Corporate Responsibility
Outlook
Revenue
Underlying operating profit
£830.6m
£118.8m 10.5p
2011: £718.3m
2011: £91.4m
30%
Dividend per share
16%
The year just ended was one of excellent
growth, delivering record results. Reflecting
this performance, the improved quality of the
Group’s earnings and our confidence in the
future growth of the business, the Board is
recommending a 31% increase in the dividend
for the year.
31%
2011: 8.0p
Financial performance measures described as “underlying” within this report are before amortisation of intangible
assets acquired and, where applicable, notional interest. Underlying earnings per share is based on the basic weighted
average number of shares in issue.
6
Directors’ Report Business Review
Chief Executive Officer’s Review
STRONG GROWING
RESILIENT
STRONG DEMAND, COMBINED WITH THE BENEFITS
OF OUR INVESTMENTS, PRODUCED HIGHER
MARGINS AND RECORD EARNINGS.
Introduction
In another record year it is difficult to pick out
specific successes but the growing
acceptance of the Engineered Conveyor
Solutions concept by some key customers and
the growth of Fenner Advanced Sealing
Technologies within the Advanced Engineered
Products division, both by organic investment
and acquisition, stand out. The recognition of
the eminence of Secant Medical in the design
of medical textiles was reflected in its revenue
growth and also deserves a mention.
Throughout this report we have introduced the
updated vision and strategy for Fenner which
was developed by the Executive Committee,
with the support of the Board and the input of
senior management across the Group. This
builds on our success to date and
demonstrates how we will drive long-term
value for our customers, employees and
shareholders.
Business model
The Fenner business model is to devolve
authority into the operating units, within an
appropriately controlled environment. These
operating units are close to our customers
and are responsible for delivering the
products and services to them. The operating
units are grouped into two divisions: the
Engineered Conveyor Solutions (“ECS”)
division and the Advanced Engineered
Products (“AEP”) division. These two divisions
enable us to develop expertise within each
market segment across our wide geographic
footprint. Our culture of continuous
improvement and investment ensures that
our products meet and exceed the demands
of customers.
ECS and AEP both provide premium quality,
comprehensive, market focused, whole life
7
value products and services. This has enabled
both divisions to build strong brands and
excellent reputations in their chosen markets.
These characteristics are considered to be the
key to the success of the Group.
Fenner has an experienced and stable
management team, backed by solid financial
performance and a robust balance sheet.
Accordingly, Fenner is able to continue to
invest organically and by acquisition to
maintain and develop its strong market
positions and strategic partnerships.
Market overview
The economic recovery continues, but it has
weakened. In advanced economies, growth is
now too low to make a substantial dent in
unemployment and in major emerging market
economies, growth rates that had been strong
have also slowed. The IMF growth forecasts
for 2013 have been revised from 2.0% down to
1.5% for advanced economies and from 6.0%
to 5.6% for emerging and developing
economies although they note that, “… trade
channels are surprisingly strong, with, for
example, lower exports accounting for most of
the decrease in growth in China.” (Source:
IMF World Economic Outlook, October 2012).
The demand for ECS goods and services is
primarily driven by the tonnage of minerals
extracted, handled and consumed. Mineral
extraction and consumption tonnages are in
turn driven by the internal growth of emerging
economies. Coal is our most important
market, followed by iron ore and copper ore.
Other minerals and aggregates are important
in some geographic markets. Energy coal
prices fell during the year despite production
volumes continuing to increase on a global
basis. The USA has seen reductions in
consumption which were predominantly due
Nicholas Hobson
Chief Executive Officer
to local factors, some of which, like the price
of natural gas, are considered short-term
effects. Iron ore and metallurgical coal prices
held up well until the final quarter of the
Fenner financial year allowing record export
levels to be declared by BHPBilliton and Rio
Tinto.
Following our year end there was a market
correction in commodity prices which was
driven by uncertainty over the continued
growth in demand. Nevertheless, prices still
remain well above those during the global
financial crisis. The medium to long-term
projections for coal demand from the
International Energy Agency show continued
growth.
Coal price, production and demand are
illustrated on page 16
There is no single driver of demand for the
AEP division. However, significant revenues
are derived from oil and gas, medical,
construction and the general industrial
markets of North America. The oil and gas
markets continue to perform well, not only
from steady demand and security of supply,
but also from the increasingly sophisticated
extraction methods, such as shale gas
“fracking”, which require our high
performance products. Despite regulatory
changes in the USA, the medical market looks
favourable while construction remains weak
and the North American industrial market
has, to date, held up well.
Overview
Vision
To be respected as the leading global provider of local, engineered solutions for performance-critical applications.
Business Review
Strategy
Our strategy is to increase market share and target new value added product areas to create a strong, growing and resilient company for the
coming decades. We will continue to concentrate on growing those businesses where we already demonstrate leadership through our skills in
applications, design, materials technology and dedication to customer service as well as by carefully planned acquisitions to create value for
all our stakeholders in a zero-harm environment.
Strategic goals
Strong
Growing
Extend intellectual property
inventory
Maintain and improve business
infrastructure
Maximise organic and acquired
growth
Performance-critical
Increase focus on faster growing
emerging markets
Balanced portfolio
Governance
Invest in human capital
Resilient
Aftermarket focus
Exposure to long-term growth
markets
Identify fast growing applications
Sustain a secure balance sheet
Remuneration
Fenner acknowledges that its market leading position means it has social and environmental responsibilities that must be embedded
within the business decision-making process. These five elements continue to contribute to Fenner’s overall business success, bringing
with it an enhancement to reputation, profitability and shareholder return.
Health and safety
Our people
Environment
Those Key Performance Indicators which
are used to measure performance against
strategy are set out on pages 27 to 28
Community
Details of the principal risks which could
potentially impact the progress of
strategy are set out on page 22
Business behaviours
Outlook
The AEP operations are trading satisfactorily,
albeit with some pockets of moderate
destocking. Recent acquisitions are expected
to support continuing growth.
As we have highlighted, in the latter part of
the year, ECS saw slower demand from the
US coal sector offset by stronger demand
elsewhere. Order rates from the US coal
sector bottomed in May and have improved
steadily since. While we do not expect to
benefit fully from the positive impact of this
trend until the second half, the divisional
order book is satisfactory overall. Commodity
prices have recently reduced which, while not
directly weakening activity for ECS, may lead
to some short-term pressure on margins.
Nicholas Hobson
8
Chief Executive Officer’s Review continued
STRATEGY IN ACTION
Strong
Kwinana Expansion - ECS Australia
Work progresses on time and on budget at
Fenner Dunlop Australia’s $20 million
expansion that will double the capacity of the
Kwinana plant which is currently operating
at full capacity. Civil engineering work is
complete and the major equipment
deliveries will be made over the coming
months, with the plant in production by June
2013.
Western Australia have responded positively
to our construction of a substantial and
state-of-the-art heavyweight conveyor belt
plant in their own backyard.
Some of the world’s most efficient iron ore
mines are in Western Australia and there are
excellent prospects for long-term growth in
demand for replacement conveyor belt.
The expansion involves construction of a
second press line that will increase
production capacity to approximately 200,000
metres per annum. Mining companies in
Growing
Enabling Technology Award - AEP USA
Developers of medical textiles are constantly
challenged to find the optimum balance
between various design constraints.
Components must be devised which offer
the correct combination of physical
properties, whilst also meeting the
customers’ requirements for tissue ingrowth
and rate of absorption by the body once
implanted.
Secant Medical is expert at providing this
capability to medical device companies and
has grown substantially in recent years.
Resilient
This independent recognition of Secant’s
expertise in materials science and textile
engineering acknowledges their leadership
in the field of implantable biomedical
structures.
Belt Mega Lapping - ECS Chile
Minera Escondida is the largest copper mine
in the world and is located over 3,000m
above sea level in the Atacama Desert. The
mine needed to replace 32km of belt which
carries the entire output of the mine. Fenner
Dunlop Chile used its unique “belt mega
lapping” technique and devised custom
procedures and equipment to complete the
task. Mega lapping involves splicing together
standard rolls of belt under factory
conditions which can then be x-rayed to
ensure quality. The belt is then loaded onto
platforms that carry 100 tonnes of belt each
9
Frost and Sullivan, a global research
organisation, recently recognised Secant’s
achievements and presented the North
American Enabling Technology Award to the
Pennsylvania based business.
and can then be moved by road to the mine
over 150km away. Dedicated remote
controlled winders were temporarily
installed in the conveyor system to pull on
the new belt while simultaneously winding
up and removing the old, worn belt. This
process minimised the number of people
working at high altitude; nobody was allowed
near while the belts were moving. The whole
task was completed in 10 days.
Overview
Q&A
one priority for everyone at Fenner.
We believe that everyone who works for
Fenner should expect to return home at
night in the same fit and healthy state in
which they came to work in the morning.
Q: Fenner has enjoyed strong
growth in recent years.
What factors have
contributed to this
growth?
A: Sales revenue at constant exchange rates
Q: Many mining companies
have announced reviews
and reductions of their
future capital investment
plans. How do you expect
this to affect Fenner?
A: Conveyor belt is a consumable item in
most applications and the market for
replacements is many times larger than
the market for belts used in new
installations. Fenner’s ECS division has
been deliberately positioned to take
advantage of this with 15 factories and 46
service branches positioned in or close to
many of the major mining regions of the
world. 86% of the ECS division’s revenue
in 2012 was from this aftermarket, the
remaining 14% being from new
installations.
investments of £29m in various Fenner
operations around the world, more than
half of which have been to expand our
capacity and capability to support our
customers. Included in this total are
three projects to increase our
manufacturing capacity for conveyor belt
in China, Australia and the Netherlands.
All three of these projects are expected to
be completed during the winter of 2012
and spring of 2013.
Q: What are the main
economic drivers for the
AEP division?
A: The AEP division is made up of operations
which specialise in solving customers’
most difficult engineering problems in a
wide range of market niches. Whilst there
is no single economic driver, the division
has achieved annual compound revenue
growth at constant exchange rates of 8%
over the last four years.
Approximately 20% of the division’s
revenues are derived from the oil and gas
market and 13% from the medical
market, whose economic drivers are
growth in global energy consumption and
global healthcare respectively. A further
15% of revenue is driven by the
construction industry which has been
rather depressed in recent years. The
remainder of the division’s products
serve general industrial markets with
North America being the predominant
geography.
has increased at an annual, compound
rate of 11% for the last four years. Organic
growth in both divisions has accounted for
approximately 60% of this total, with the
remainder coming from targeted
acquisitions. Fenner serves a number of
end markets, such as mining, energy and
medical, which enjoy good, long-term
growth characteristics and have been
particularly strong in recent years.
In addition, there are considerable
opportunities for geographic expansion of
our successful business models into nontraditional markets and for product line
extension to increase penetration of
existing markets.
Q: You have said that
additional production
capacity will be coming
online soon. When do you
expect this to be
available?
A: In the last year we have made capital
The oil and gas industry, representing
approximately 6% of Group revenue, will
benefit from growth in global energy
demand while the medical device market,
representing approximately 4% of Group
revenue, is expected to continue to grow
faster than GDP as populations age in
developed economies and healthcare
provision grows in developing economies.
A high level of mining capital expenditure
is always welcome because it adds to the
future installed base of conveyors.
However, a reduction in mining capital
has limited direct effect on our ECS
business.
Remuneration
Since its launch in 2009, The Framework
approach has markedly improved the
awareness and attention paid to health
and safety and we have seen a steady
decline in the frequency of injuries. Our
health and safety journey is one of
continuous improvement across the
Group; many parts are now focused on
utilising leading indicators such as near
misses and safety inspections as a
further means to improve our
performance, assisting us all.
exploit markets which have good, longterm growth characteristics. In the
mineral extraction industry, representing
approximately 54% of revenue, demand
for coal, iron ore and copper ore, despite
the current period of uncertainty, is
projected to continue to grow over the
medium and longer term, driven by
industrialisation and urbanisation in BRIC
countries.
Group
Finance Director
Governance
Throughout the Group we work to fulfil
these objectives through a unique
approach known as The Framework,
which communicates our expectations
whilst encouraging every Fenner employee
to participate in taking responsibility for
health and safety through a process of
continuous improvement.
Q: Do your end markets and
businesses hold further
growth opportunities?
A: Fenner is well placed to continue to
Richard Perry
Chief
Executive Officer
Business Review
Q: What is Fenner’s
philosophy and practice
for Health & Safety?
A: Health and safety is simply the number
Nicholas Hobson
10
Q: Shale gas has been a
volatile market. How
important is this market
and will you continue to
expand in this area?
A: Shale gas production has grown rapidly in
the USA over recent years and Fenner has
participated in that growth through
Fenner Advanced Sealing Technologies’
sealing products. Spring of 2012 saw a
period of shale gas oversupply and rapidly
decreasing gas prices which has
temporarily slowed development of US
shale gas resources. This market
accounted for less than 2% of Fenner’s
revenue in 2012 but we expect substantial
growth in future years as American
unconventional drilling technology is used
to exploit reserves in other regions.
Q: Margins have increased
steadily over the past
three years in ECS. How
has this been achieved
and what progress do
you anticipate in the
future?
A: Margin improvements in ECS have been a
result of three main factors:
we have made considerable
improvements in manufacturing
productivity and process control as a
result of our capital investments in
recent years;
new products have enabled us to gain
share in steadily growing global
markets; and
we have progressively extended the
technical capabilities and geographic
footprint of our ECS programme
which has enabled us to become a
more added value supplier to our
markets.
11
Q: AEP margins remain in the
upper teens but softened
during the global financial
crisis. What caused the
margin compression and
where should margin
expectations be for the
future and why?
A: Historic operating margins have been
Q: What was your experience
last year with raw
material pricing?
A: Generally, raw material prices have been
In economic downturns, the characteristic
of the AEP division was that rather than
reversing its gains it merely stopped
growing for a period. The global financial
crisis was quite a different environment.
Driven by cash constraints throughout the
industrial world, our distribution partners
and original equipment manufacturing
customers were forced to reduce their
stock holdings to preserve cash. The
impact of these programmes on our AEP
operations was immediate and serious.
Order books collapsed and our operating
margins saw an 18 month period of
reduced performance. An important feature
was the resilience of our gross margin
position which demonstrated the retained
value of our components in the markets
they served. Operating margin compression
was the result of reduced volumes and our
decision to maintain our product
development and customer service
capability throughout that difficult period.
already possess an enviable worldwide
footprint operating from 15 plants on five
continents. Business development is a
constant focus and we will build strength
in the emerging geographic areas where
our customers require our support and
which can be demonstrated to offer longterm shareholder value. This will likely
take the form of infill organic investment
and further service and technical
coverage rather than large scale spending
on acquisitions.
remarkably stable in our AEP division. The
division comprises a number of specialist
units operating in niches that have been
developed over many years from providing
engineered solutions to troublesome
customer applications.
Margins have steadily returned to their
historic norms over the past two years.
Initially this was due to the end of the
customer destocking programmes and
was followed by the gradual improvement
in end market activity levels.
We anticipate a reduced rate of margin
growth in the future. Although the vast
majority of the benefits of our capital
investments have been realised, there are
continuing opportunities to expand
market share and delivery of our ECS
model.
We remain focused on protecting and
developing our existing business and
driving investment into high margin growth
areas such as our medical units and oil
and gas related areas. These represent
exciting new developments in higher
margin markets which are expected to
slowly improve the already excellent
margin performance of the division.
A detailed review of the ECS division is
set out on pages 15 to 17
A detailed review of the AEP division is
set out on pages 18 to 20
stable in 2012 compared to the dramatic
price increase environment experienced
by our business teams in the prior year.
Q: How will ECS grow in the
future? Do you anticipate
further geographic
coverage in the division
and how will this be
achieved?
A: From a manufacturing standpoint, we
We have recently announced the
conditional acquisition of Australian
Conveyor Engineering which effectively
completes our ECS technology platform in
Australia.
Q: 12 months ago you
launched the ECS brand.
Why did you do this and
has it been successful?
A: The ECS brand was launched to
demonstrate to the world that, after more
than a decade of hard work, Fenner
Dunlop is no longer just a belt
manufacturer but is uniquely capable of
offering customers total solutions to
minimise downtime and reduce the total
cost of ownership of their conveying
systems.
Delivering a message of this type is
always a long process and we are pleased
with the initial response from both our
customers and financial markets.
capital investment programme from 2006
to 2008. The programme was successfully
implemented and, together with
acquisitions, has created a virtuous circle
of cash generation that is available for
future investment. Our teams operate in
many geographic end markets and
The Mandals group of companies
demonstrates many of the same
attributes as other AEP operations and
has developed world-leading technologies
for the manufacture of lay-flat hoses used
in various fluid handling markets
including oil and gas, agriculture and
mine dewatering.
Q: How quickly can the
medical operations
expand? Will this be
achieved through organic
growth or acquisition?
A: The expansion of Fenner’s medical
We are committed to a strategy of
continuing to invest for growth in both
divisions and therefore any major change
in the revenue balance is unlikely in the
short term.
Q: The rate of dividend was
increased significantly in
2012. How should we view
the policy going forward?
A: Fenner has a good record in terms of
dividend performance which it has
guarded through many economic
downturns. Since the dividend was
reinstated in 1994, the dividend has never
been passed or reduced.
The Group invested heavily during the mid
2000s and improved its earnings quality.
Today, Fenner is a different business to
the one that saw the turn of the
millennium. It is better equipped and
more flexible, with an enviable diversity of
geography and markets which have driven
higher quality earnings and an
expectation of greater resilience in harder
economic conditions.
The dividend was increased by 31% in
2012 to reflect the 57% increase in
underlying earnings per share in 2011 and
a further 28% in 2012. At this level, the
dividend cover is in excess of three times.
The Group is committed to maintaining a
progressive policy in regard to its
dividend, which will be reviewed annually
in the context of the prevailing conditions.
activities is expected to occur through a
Q: Organic capital investment
has been a characteristic
of the Group in the past
five years. What should we
expect in the future?
A: We embarked upon a very considerable
American Industrial Plastics has
remarkable expertise in ultra-high
precision machining of polymers. The
facility in Daytona Beach, Florida serves a
number of end markets, the most
important being oil and gas and medical.
grown at comparable rates over the last
four years and therefore the balance of
revenues has been fairly stable with ECS
at 71% and AEP at 29%.
The fundamentals of the coal extraction
industry in North America remain sound.
The economic extraction prices of natural
gas and coal determine that the coal
industry has a long life ahead of it.
Investment is continuing in efficient new
mines and port infrastructure to support
both domestic demand and the growing
export market.
division is focused on the oil and gas and
medical markets due to their attractive
underlying growth fundamentals.
Norwegian Seals supplies performancecritical seals for the subsea oil and gas
market and focuses on the Norwegian
continental shelf and North Sea fields
from facilities in Norway and the UK.
Q: How do you anticipate the
balance between AEP and
ECS developing in the
future?
A: Both the AEP and ECS divisions have
Remuneration
It is clear that the US coal and gas
industries are currently in a period of
uncertainty. As we enter the new financial
year, US gas prices have increased by
more than 50% and coal stockpiles have
also reduced. At current prices, shale gas
production is expected to naturally wane
and the effects of recent events will begin
to reverse.
Q: Fenner has recently
announced three
acquisitions in AEP. How
do they fit within the AEP
strategy?
A: Our acquisition strategy for the AEP
Despite challenging trading conditions at
Xeridiem, medical revenues grew
organically by 7% this year. We continue to
target medical revenues of over $100m
although this level will not quickly be
achieved until our acquisition process
begins to bear fruit.
Governance
In our North American ECS operations, we
have experienced slower incoming order
rates since early summer although the
effect on 2012 trading was largely offset by
strong demand patterns in other regions.
The capital expenditure programme is
complemented by our business acquisition
activity where £34m was invested in the
2012 financial year and a further £40m in
the opening month of the current year.
combination of organic and acquisitive
growth.
Business Review
following a mild winter and overexuberant development of shale gas
resources. As a result, those electricity
generators who were able to do so began
to switch fuel source from coal to gas,
leading to a decline in coal consumption of
approximately 9%. Since then, mining
companies have sought to adjust their
production rates to match lower demand
and a number of less efficient, higher cost
coal mines have been mothballed or closed.
constantly develop exciting opportunities
for the creation of future shareholder
value. We have invested in excess of our
depreciation charge of £20m in 2012 with
£29m of expenditure during the year,
giving a capital expenditure/depreciation
ratio of 1.4x. With only approximately £9m
of this amount being used for equipment
replacement, it is evident that we are
investing heavily in development, with
approximately £20m in 2012. It is
anticipated that a similar level of
development capital expenditure will be
invested in both 2013 and 2014.
Overview
Q: The North American coal
industry has been affected
by the availability of
cheap, plentiful shale gas.
What effect has this had on
Fenner’s operations?
A: US gas prices fell to a low in spring 2012
12
Q: Group gearing remains
conservative, supported
by good free cash flow
from profitable
operations. Is this likely to
change?
A: Share capital is an expensive and valuable
resource which should be put to work
with sensible levels of complementary
leverage. The fixed-term nature of our
senior debt directs us to maintain a net
debt to underlying EBITDA ratio of at least
1x in order to ensure efficient utilisation of
the facilities available to us.
With a global debt covenant of in excess of
3.5x, we would not expect this ratio to
exceed 1.5x in normal trading conditions.
Q: What are the risk factors
that worry you?
A: Investment in manufacturing on a global
scale is inherently a risky business over
the short term; control of our operating
risks is therefore a part of our existence.
We believe that the quality of our people
and the flexibility that our recent
investments have built into our operations
mitigates these risks.
Macro-economic trends beyond our
control remain the most significant
variable in our operating universe. Our
defence is our diversity, but a macro event
that impacts markets on a global scale
would inevitably lead to a challenging
environment for our Group.
Q: Do you have any plans for
a future share issue?
A: Our balance sheet strength, secure debt
financing and free cash flow generation
are currently seen as sufficient to finance
our existing plans. This does not preclude
an approach to our shareholders in the
event of a value generating proposition
being developed; however, there are
currently no plans or need for such an
approach.
13
Overview
OPERATING REVIEW
Performance
All our operations have processes that require
high levels of proficiency and technical
expertise. Some of those skills are not
available in the general workforce in every
region. Therefore, we have increased our
commitment to training and development.
Fenner continues to benefit from a skilled and
committed workforce in both our acquired and
existing operations. We acknowledge the
importance of our employees’ contribution to
the performance of the Group.
Fenner uses a wide range of materials, from
thousands of tonnes of rubber compound to a
few hundred grammes of biomaterials, so our
operations work closely with selected
suppliers to ensure that our customers
benefit from the latest technical
developments in materials and processes.
The majority of these relationships are in the
normal course of business, ensuring quality,
continuity of supply and competitive
commercial terms. Where appropriate, and
usually relating to technical developments,
relationships are formally documented. After
the volatility of the previous year, in 2012 most
Fenner operations saw stable material prices
and improved availability. Close cooperation
with established suppliers and active
development of new sources has ensured, and
continues to ensure, continuity of supply,
consistent quality and technical leadership.
The productivity, and in the service operation
the utilisation, of our employees is a key
factor to success. Due to the diversity of our
operations, this is best measured by total
sales per employee. The sales per employee
graph on page 28 shows that this year
productivity increased primarily due to those
recruited in 2011 and 2012 becoming fully
trained and productive. Other factors behind
the 5% improvement include continued
efficiencies from ongoing capital investment
and other improvement initiatives such as six
sigma programmes.
The most significant indicator of health and
safety performance is the Lost Time Incident
Frequency Rate as detailed on page 28 which
shows a continuing improving, downward
trend because of improvements in our health
and safety performance. We also monitor the
absolute number of lost time incidents as
In 2012, our sales growth again outstripped
our employee growth, pointing to the Group
reaping the benefits of its employee
development and improving business
practices. The average number of employees
increased by 422 in 2012 to 4,970, an increase
of 9%. This increase largely occurred in the
first half of the year, with the majority of the
new employees joining existing operations in
production and service roles.
From the large multinational oil, gas and
mining companies to the smallest medical
start-up, across thousands of customers,
each Group operation ensures it is meeting its
customers’ expectations. Experienced sales
teams maintain close contact with customers,
providing feedback on those expectations and
ensuring satisfactory actual performance.
These qualitative indicators are
complemented by quantitative measurements
including customer surveys and “on time in
full” performance. Whilst some operations
are dependent on a small number of
customers, Fenner’s largest customer
accounts for less than 5% of revenue.
The Group has continued to grow in 2012, both
organically and by acquisition. That growth
brings with it greater responsibilities and
enhanced expectations from our customers,
employees and neighbours. Fenner promotes
health and safety as a key element in the
culture of each of its operations. The Health &
Safety Management System Framework (“The
Framework”) provides structure and guidance
to all operations, irrespective of size, to
deliver continuous improvement within our
unique culture of autonomy with
accountability. Providing services at customer
facilities is a growing part of our business.
Often these customers demand sound health
and safety management systems. For such
customers, The Framework, our health and
safety management systems and the
associated training are a significant and
unique selling proposition.
Employees
Customers and suppliers
Remuneration
The Group is absolutely committed to
ensuring that all employees can work safely
at all times. This overriding commitment to
provide a safe and secure working
environment extends to those employees of
other companies working on our behalf as
well as to customers, visitors and neighbours
who may be affected by our activities.
A detailed review of the Group’s health
and safety policy is set out in Corporate
Responsibility on pages 50 to 52
A detailed review of the Group’s
employment policy is set out in Corporate
Governance
Health and safety
detailed on page 28. The selection of an
absolute measure across the whole Group,
which does not reflect changes in employee
numbers or hours worked, demonstrates our
belief that everyone who works for Fenner
should return home in the same fit and
healthy state in which they came to work.
With significant commitment from all levels of
management and a focus on health and safety
through The Framework, it is disappointing to
report a small increase in the number of lost
time incidents compared to the previous year.
Delivering continuous improvement year-onyear is challenging and, as our operations
respond to increasing demand with higher
output, additional working hours and new
staff are required.
Business Review
Continued growth was driven by demand from
Fenner’s major markets: mining for ECS and
oil and gas and medical for AEP, but growth
was also seen through our distribution
channels into general industrial markets. This
delivered a second year of significant revenue
growth for both divisions. Not all end markets
performed equally strongly with weakness
experienced in the construction market in
particular. Geographically, the Asia Pacific
region saw the strongest growth followed by
the Americas. Although ECS showed a slight
increase in new project work, 69% of Group
revenue was derived from the MRO
(Maintenance and Repair Organisation) and
service aftermarket with the remaining 31%
sourced from OEMs (Original Equipment
Manufacturers) and new projects. In general,
growth rates eased as the year progressed.
14
Revenue
£593.4m
£84.4m
Employees
2,732
Manufacturing units
Sales and service branches
The ECS division, trading under the Fenner
Dunlop, Fenner and Dunlop brand names, is a
recognised leader in the global conveying
market. The division offers a unique,
comprehensive suite of products and services
which serve the conveying needs of mining,
power generation and bulk handling markets.
These products and services, which include
heavyweight ply, solid woven and steel cord
conveyor belting backed-up with design,
installation, monitoring and maintenance
Case Study
services, is tailored to suit each customer’s
individual needs. Commercial arrangements
vary from a purely transactional relationship
to a full strategic partnership to reduce both
conveyor downtime and total cost of
ownership. Each type of product within the
ECS portfolio provides benefits but the full
value is only realised by the integrated offer,
ECS value, illustrated below.
The ECS division experienced positive trading
conditions throughout most of the year under
UsFlex applications in waste - Dunlop
With some of the world’s biggest industrial
players recognising the recycling industry’s
importance, the Netherlands based Dunlop
Conveyor Belting is addressing the specific
demands of waste handling. Waste metal,
ceramics, rock and timber destroy fabric and
steel reinforced conveyor belts surprisingly
quickly. Household rubbish appears harmless
but contains mineral and vegetable oils that
wreck the toughest looking rubber belt in weeks.
Dunlop’s technical team developed bespoke
belts which use cut resistant and oil resistant
covers with proprietary UsFlex rip resistant
fabric which have successfully extended belt life
from weeks to months and even years.
15
review, driven by record levels of coal and iron
ore extraction. Although construction markets
remained weak, growth in revenue of 16% was
spread across all regions. Order intake from
the US coal sector slowed in April and May but
has improved steadily since. The growth in
sales of steelcord conveyor belting continued
unabated throughout the year. Margins
benefitted from improved manufacturing
efficiencies and exploitation of the capabilities
of the plant and machinery commissioned in
recent years.
An analysis of ECS revenue by markets
served is on page 17
ECS value
During the year, Fenner Dunlop Americas
dedicated a Life Cycle Management team to
work on site at Consol Energy’s Enlow Fork
Mine, one of the largest longwall coal mines
in the world. Daily interaction between the
team and the customer’s operational
personnel ensured that the full range of ECS
solutions were available and effectively
deployed, particularly those from newly
acquired Allison Custom Fabrication. Helping
Consol to minimise their total cost of
ownership benefits Fenner by supplying a
wider range of products and services for
projects like the 9km overland conveyor
system currently under construction.
After the year end, in October 2012, Fenner
exchanged contracts to acquire Australian
Conveyor Engineering ("ACE"). The
transaction is expected to complete at the end
of November 2012. ACE specialises in
World coal demand
10000
200
8000
150
6000
100
4000
50
2000
0
0
Sept‘06 Sept‘07 Sept‘08 Sept‘09 Sept‘10 Sept‘11 Sept‘12
Monthly average
12000
Steam Coal Marker
NW Europe
World coal
production
Source: The McCloskey Group and BP
Tonnes (million)
10000
OECD Pacific
OECD Europe
OECD North America
Transition Economies
China
India
Africa
Other
8000
6000
4000
2000
0
1980
2000
2009
2015
2020
Year
2030
2035
Source: International Energy Agency
250
Tonnes (million)
US$/tonne
Coal price and production
The bulk materials segment remains soft, but
therefore represents opportunities for growth
in the future once housing construction
returns to more normal historic levels. Prices
for commodities, including copper and iron
ore, mean that they remain relatively
Australia
Year-on-year growth continued in the
Australian operations. Coal and iron ore
remain the main trading exports for the
country and the biggest drivers for the trading
The new Kwinana press project is on target for
completion in 2013. Site preparation is now
complete and capital equipment has been
despatched. The new steel cord press is to be
sited alongside the existing press, which
operated uninterrupted throughout the civil
engineering phase. The steel cord order book
at the end of the 2012 fiscal year is twice as
high as at the previous year end.
In the second half, market sentiment
weakened in the coal mining segment,
resulting in a decline in order rate which has
since improved. The record mild winter
temperatures in the USA resulted in surplus
coal stockpile at power plants. In addition, the
availability of low price natural gas and
pressure on carbon emissions led to power
producers switching from coal to natural gas.
Coal’s share of power generation declined
from 50% to a historically low 37%. Over
recent months coal stocks have fallen and gas
prices are rising. Fenner Dunlop Americas is a
supplier and partner to many customers who
are financially strong and who are amongst
the lowest cost producers of coal. These
customers are better protected from volume
and margin pressures that have resulted in
the closure of smaller, less efficient mines.
Remuneration
performance of our Australian ECS
operations. The medium to long-term
forecasts for both of these commodities
remains positive. Revenue growth was led by
the service and ancillary products which now
account for over half the sales in Australia;
belting sales also increased. This sales mix
will provide protection against slower belting
demand in any future environment and, when
combined with our regional branch
distribution, provides real competitive
advantage.
Governance
In December 2011, Fenner acquired Allison
Custom Fabrication, based in Western
Pennsylvania, which specialises in the design,
engineering, machining and metal fabrication
of customised material handling equipment.
This acquisition strengthens Fenner Dunlop’s
engineered conveyor solutions capability to
help customers improve safety and reduce
total cost of ownership, in both above and
below ground conveying applications. We have
continued to develop the ECS offering in North
America and Australia where product teams
have been established to identify and promote
product lines which are suitable for branch
based selling. Conveyor diagnostic product
systems continue to increase in importance,
supporting both the ECS model and the sale
of premium products. Systems are now
established and performing well in the UK,
South America, North America, Africa and
Australia.
Americas
Fenner Dunlop Americas built on the
improvements in the previous financial year to
deliver record results for the second year in a
row. Revenue growth was supported by
improved operating efficiency arising from
recent major capital investments.
Business Review
supplying engineered conveyor solutions for
the design, manufacture and installation of
high capacity conveyor systems for both
surface and underground mining, with the
capability to take projects from the initial
concept to the commissioned conveyor
system. The acquisition is a significant
development for the Fenner Dunlop
engineered conveyor solutions offering in
Australia, through which we are growing by
strengthening our capabilities to effectively
manage the lifetime cost of our customers'
conveyors throughout the business cycle. Enlow Fork - Fenner Dunlop Americas
Overview
Case Study
16
attractive prospects in Canadian, Mexican and
South American markets. Steel cord belting
remains in strong demand and delivery lead
times have been, and remain, extended.
Whilst diversification into new territories and
market segments continues to reduce the
dependency on the coal mining industry, US
service operations are primarily focused on
coal mining, handling and coal fired power
generation. We remain positive about the
market demand for services, not least
because the mining industry is facing a skills
shortage and therefore the recruitment,
training and retention of skilled technicians is
an increasing challenge. Our Chilean
operations in Antofagasta and Santiago
primarily provide services to the copper
mining industry and have made significant
gains in 2012 as well as generating conveyor
belting sales throughout South America.
Europe
Based in Drachten in the Netherlands, Dunlop
Conveyor Belting serves European markets
and exports extensively. Western European
demand declined during the year but export
markets in French Africa, South America and
the Middle East continue to be strong, with
political instability in some of these markets
providing opportunities as well as risks.
Dunlop Conveyor Belting now has eight
service outlets across Europe and one in
North Africa, which not only generate local
service revenue, but also support customers
locally, enhancing market share.
Solid Woven
The solid woven operations have performed
well this year, largely due to increased
demand from both coal and potash producers,
and, whilst the growth rate is currently
weakening, current demand appears to be
sustainable. The UK based solid woven
operation grew its market share in the former
Case Study
When the ECS factory in Shanghai was built in
1997, the only reliable source of process
energy was heavy fuel oil, later supplemented
with LPG. A recently installed natural gas
main gave ECS China the opportunity to
substantially reduce its environmental impact
by investing in new pipework and burners.
This investment has reduced carbon
emissions by 1200 t per year and has almost
eliminated other serious pollutants. In
addition, reduced maintenance and lower fuel
costs provide a direct financial return. This
clean burn technology also allows for future
developments such as flue gas heat recovery.
Soviet Union and benefited from robust
demand from the Canadian potash market
whilst maintaining market share in Western
Europe. Demand from the Indian public sector
is growing, albeit slowly, which is
supplemented by a developing private sector,
although the export markets remain a
significant and attractive market for our
Indian operation. Our operation in China
exceeded expectations in the year under
review; its largest customer returned to the
market following destocking in the previous
year and our programme to widen the
customer base saw early successes. China
remains cost sensitive and, in the current
environment, gaining full commercial
recognition for the benefits of our technically
superior product is challenging.
in the year. Uncertainty over mining mineral
rights and political calls for nationalisation
continues to delay new projects, which in turn
limits our opportunities in the short term, but
we have begun to diversify away from our
dependence on South African coal.
Despite labour unrest and a reduction in mine
output, our South African operation has grown
in the year following market acceptance of our
local steel cord products. Margins suffered
from the rapid deterioration of the Rand early
ECS revenue by markets served
ECS revenue - OEM (new customer capacity) vs aftermarket
£593m Revenue
2012
Natural gas - ECS China
71% of Fenner
51%
£593m Revenue
2012
71% of Fenner
64%
26%
14%
COAL MINING
& HANDLING
Underground coal
Power stations and ports
Fire resistance critical
High/intense use
Driven by electricity demand
17
23%
OTHER MINING
Predominately iron ore
Other hard rock mining
Highly abrasive
Driven by steel demand
BULK MATERIALS
Predominately
aggregates
Driven by construction
and infrastructure
activity
REPLACEMENT
PRODUCT
Worn out
Damaged
Typical belt life
3-5 years
OEM
22%
(New Customer Capacity)
SERVICE
Maintain / Manage
Install / Replace
Emergency repair
Monitor conveyor condition
Detect conveyor faults
Mine expansions
New mines
Overview
Business Review
Revenue
£237.2m
Governance
£43.6m
Employees
2,204
Manufacturing units
Sales and service branches
The AEP division is divided into five product
group operations which are managed on a
global basis. These operations are detailed
below.
Solesis Medical Technologies, focused on
North America, comprises Secant
Fenner Drives designs, manufactures and
sells an extensive range of bespoke
solutions for mechanical power
transmission and motion transfer
applications; and
James Dawson manufactures silicone and
EPDM speciality hoses for the diesel engine
and off-road equipment OEM market.
Fenner Advanced Sealing Technologies
(“FAST”) manufactures performance-critical
seals for mobile hydraulic equipment, mining
and oil and gas extraction and exploration
equipment. FAST also produces high reliability
After the year end, in September 2012,
Norwegian Seals was acquired to enable sales
to be developed to the Norwegian continental
shelf and North Sea oil and gas markets. Also
in September 2012, American Industrial
comprises: performance-critical hydraulic
seals for the global fluid power industry,
trading as Hallite; CDI Energy Products,
which is focused on sealing solutions for
the oil and gas markets; and EGC Critical
Components, which develops and supplies
bespoke products for process applications
including electronics, pumps, valves,
compressors and aerospace applications;
Fenner Precision provides unique
solutions to OEM system design
challenges including engineered rollers
and tyres, precision belts and pulleys and
custom moulded engineered polymer
products;
seals and other performance-critical products
for pump, valve and compressor applications
and continues to diversify into similar
applications in the medical, semiconductor
processing and aerospace markets. It has
global operations with production plants in
the UK, Germany, USA, China and Singapore
and sales branches located in France, Italy,
Australia, Canada and Brazil, with a branch
planned for India. In the year under review,
FAST continued to grow strongly through
wider geographical coverage and increased
market share. The successful integration of
Transeals, the creation of an integrated
distribution system in Australia and the initial
benefits of aftermarket initiatives all
contributed to good strategic progress. In
2012, we increased our presence in China by
opening a new production facility in Suzhou,
which continued our investments in the
aftermarket. Other aftermarket initiatives
continue: all of the sales branches now have
CNC machines to enable custom seals to be
produced quickly, mobile engineers help
customers select the right seals and
salesmen directly sell to the oil and gas fields.
An analysis of AEP revenue by markets
served is on page 20
Medical, a leading developer and
manufacturer of custom-engineered
biomedical textile structures for
implantable medical devices, including
Prodesco, which provides a wide range of
sophisticated industrial fabrics; and
Xeridiem, which develops and
manufactures single use disposable
devices;
Remuneration
Operations within AEP provide high value added
solutions to customers’ most challenging
engineering problems using advanced
polymeric materials, expertise in application
design, effective manufacturing design skills
and timely delivery. Expansion into further
mission-critical applications is a key part of the
AEP strategy. The high added value, niche
nature of the product range provides protection
against the full effects of economic volatility.
18
Case Study
OEM design challenge - Fenner Precision
A leading global manufacturer of
surveillance equipment required a timing
belt to provide smooth and accurate motion
control of a security camera in a high
temperature environment without a cooling
system or even ventilation. To avoid a costly
redesign for the customer, Fenner
Precision's engineers worked with them to
develop a polyurethane belt that would
perform at temperatures 25% higher than
the standard product. One more example of
Fenner’s technical strength providing value
for customers.
Plastics in Florida, USA was acquired to
broaden our precision machining capabilities
for both CDI and EGC. It also gives the
operation an increased presence in the
medical equipment component market.
Investment continues in the new integrated IT
system for the whole of FAST, which will
enhance our ability to serve aftermarket
customers effectively and will provide a
platform for internet trading. FAST continues
to expand its global presence, maintaining its
reputation for high quality products and
selectively broadening its product range to
satisfy new market opportunities.
Solesis Medical Technologies
Fenner continues to invest for growth in its
existing medical operations as well as
searching for complementary acquisitions
under the brand umbrella “Solesis Medical
Technologies”.
There are two operations in AEP which focus on
the medical market, although other
operations within the Group supply
components to the medical equipment markets.
Both Secant Medical and Xeridiem serve the
medical device market using the same
business model; customers who have
identified an unmet clinical need contract with
either company to design a component or
product to meet that need. Both operations
are structured to make a profit on those
development activities while retaining
manufacturing rights should the customer’s
product be commercialised. Between them,
the operations are active in cardiology,
urology, orthopaedics, sports medicine, soft
tissue repair, gastroenterology, enteral
feeding, gynaecology, neurology plus general
and bariatric surgery. Both operations are
focused on North America.
19
Secant Medical, based in Perkasie,
Pennsylvania, manufactures textile components
for permanently implanted medical devices.
Xeridiem, based in Tucson, Arizona,
manufactures complete, single use disposable
devices that spend some time inside the human
body. Based on the findings of best practices
research, Frost & Sullivan presented the 2012
North American Enabling Technology Award in
Medical Implantable Textile Structures Design
Approach to Secant Medical, providing external
recognition of our leadership in this field.
In the year under review, Xeridiem experienced
rapid commoditisation of its heritage catheter
market. Substantial price pressure was more
than offset by the growth delivered by the
Secant product development pipeline,
delivering overall revenue growth of 7%.
Medical device manufacturers increasingly
view their core competency as managing
health outcomes. They mitigate risk by
Case Study
Hallite Suzhou
Hallite is dedicated to providing the best
possible sealing solution to the maintenance
and repair market through strategically
located branches. The latest of these
branches is in the Development Zone of
Suzhou, China, offering international and
Chinese companies in the Yangtze delta area
complete service with a comprehensive
stock of moulded seals complemented by
CNC machines, to produce seals to nonstandard designs; all seals are available in
the shortest possible time frame. The next
branch is planned for India.
outsourcing production and reducing internal
product development costs and prefer to
acquire products that have successfully
navigated the regulatory maze and been
commercialised. This strategy requires a
population of start-up companies with novel
technologies in order to be successful. The
population of such companies has been
reducing due to the dearth of early stage
financing from the private equity community.
A number of large medical device
manufacturers have started their own
venturing divisions to provide seed capital for
new ventures. This has had the unexpected
benefit of significantly increasing the quality of
the projects being worked on as only the best
receive funding.
Populations, especially in the West, continue
to age and gain weight; these are both
predictors of future medical device
consumption over the medium term. For the
longer term, additional emphasis will need to
be placed on developing countries.
Fenner Precision
“Designed to fit your needs - exactly!” is the
promise Fenner Precision makes across its
product offering of bespoke belts, stretch
bands, tyres and rollers for office equipment
and paper handling. In addition, Fenner
Precision produces composite mouldings in a
wide range of materials and sizes for specialist
engineering applications such as grout seals
for offshore wind farms. A single sales force
focuses on the self service, ATM, digital
printing and specialist engineering markets
throughout the world. Products are then
delivered by one of three factories in the USA
and the UK, supported by presences in
Shanghai and Singapore.
Fenner Precision continues to make good
overall progress across a wide range of niche
James Dawson
Despite variations in both geographical and
market segments, overall demand remained
steady for most of 2012, with a general
softening towards the end of the year.
Stationary power generation equipment
performed strongly, followed by heavy trucks,
with off road and construction weaker. James
Dawson continued to focus on streamlining
production and improving capability and
efficiencies, including developing a new facility
which will see all organic rubber
manufacturing transferred into a modern and
efficient environment over coming months.
Our technical expertise in reinforced silicone
and EPDM remain key competitive
advantages, with new products being
developed to address stricter emissions
standards and higher operating temperatures
for diesel engines.
Case Study
Governance
Fenner Drives
Fenner Drives’ range of added value,
innovative products is used to solve problems
in power transmission, motion control and
package handling industries worldwide.
Fenner Drives brands such as PowerTwist link
belt, Eagle polyurethane belting, B-LOC and
Trantorque keyless bushing and T-MAX
tensioners are well known and widely
accepted in many of the world’s industrialised
economies. The year has seen limited market
growth in North America and new competitors
entering the market for some products which
has limited margins and growth. However,
opportunities in South America have
compensated for weak European markets and
growth opportunities remain, particularly in
South America, the Middle East and Eastern
Europe. Through investment in staff,
equipment and IT, we continue to improve our
product development which should deliver
Acquired in early September 2012, Mandals is
a leader in an area of reinforced polymer
technology which complements our existing
operations, particularly James Dawson.
Based at the southern tip of Norway, Mandals
is a manufacturer of innovative lay-flat and
speciality hoses for use in demanding
applications in the agricultural, infrastructure,
potable water and oil and gas markets around
the world.
Tuff Breed - CDI Energy Products
Remuneration
For over 30 years, CDI Energy Products has
provided oil and gas customers with world
class, custom, innovative, high performance
seals and components. From seals going
30,000 feet underground to valve seals in
highly corrosive solutions, our knowledge of
materials and manufacturing ensures
success. Tuff Breed® well service packing
products work with every abrasive, high
pressure, high volume down hole application
in exploration or production including
enhanced oil recovery and hydraulic
fracturing for gas. Tuff Breed offers the
fastest delivery times in the industry and our
experts provide on-site training.
AEP revenue by markets served
Medical
Oil & Gas
£237m Revenue
3%
20%
Business Review
growth at a higher rate than the underlying
market.
Overview
markets by growing market share and
successfully introducing new products.
29% of Fenner
13%
2012
7%
MINING
AUTOMATION
Belts & rollers
Seals/bushings
Mining equipment
Roof supports
ATMs
Printing
Automation
15%
25%
9%
CONSTRUCTION
Seals/hoses/belts
GENERAL INDUSTRIAL
Seals/belts/rollers/hoses
Alternative energy
Green solutions
Power transmission
Motion control
2%
AGRICULTURE
FLUID POWER
Seals
Industrial
Mobile
6%
Construction equipment
Tile, brick, lumber
processing equipment
TRANSPORTATION
Textiles/seals/hoses
Aerospace
Trucks
20
RISK MANAGEMENT
Culture and policy
Risk Hierarchy
Principal
Risks
Summary of risks and themes from the
Risk Universe and Heat Maps.
Reported to the Audit Committee
and the Board
Group-wide risks validated from
the operating unit Heat Maps.
Reported to the Executive
Committee
Group
Risk Universe
Detailed risk assessment
for each operating unit
for management and
control of risks
Business Heat Maps
and Risk Sheets
Risk Management: a continuous process
The management of risks is a
continuous process at Fenner which
is embraced at all levels from the
Board, Executive Committee and
divisional management to the
operating unit.
Our philosophy on risk is to accept
those risks which enhance value,
Mit
nage/ igate
Ma
R e - e va l u a t e
M o nito r
provided that those risks are fully
understood and can be managed and
controlled effectively by the Group.
We have robust risk management
and reporting procedures which
allow Fenner to maximise
opportunities, whilst also restricting
inappropriate activities.
Our risk management process is
driven from Board level, but
significant responsibility is also taken
by operating unit managers and the
risk identification process at Group
and operating unit level is linked to
our strategic planning process.
Risk factors
The Fenner Risk Universe explained opposite
analyses the risks identified into 11 categories
which reflect our business and the
environment in which we operate.
ntify/Quantify
Ide
Our strategy is the focal point of all our risk
factors. We define risk as events or situations
which may be damaging to the achievement of
our strategic business objectives.
continuously monitored, as are their mitigation
and management strategies.
We focus in particular on understanding the
link between cause, risk and effect so that we
correctly identify the risk factor which is best
measured, understood and upon which control
can be best exercised.
Group risks (Inherent and Residual) are
measured on a 10 point scale of impact and a
five point scale of likelihood. Our assessment
of impact considers both financial and
non-financial measures. Risk impacts are
Identification and management
Risk Universe
Selling
nce
na
Fi
Ma
rke
t
Strategy
Purchasing
a l t h & S a fe t y
E n vir
o n m e nt
c
io
al
He
-e
L eg
co n
Technology
o m ic
Operations
21
Fenner recognises that effective risk
management is not only essential for
the delivery of strategic objectives,
but that it also improves
performance, decision making and
helps drive sustainable shareholder
value.
So
Risks of the Group are considered as a Groupwide top down exercise which is supported and
validated by an independent assessment at
operating unit level. This produces a
consolidated “Risk Universe” and is our
principal risk management and reporting tool.
Externally facilitated Risk Workshops are run
at each operating unit. These focus on the
activities and strategies of the operating units
and the possible risks that those activities, and
the environment in which the businesses
operate, may generate.
Risk Heat Maps and detailed Risk Sheets are
prepared for each operating unit. These
quantify the risks and allocate responsibility for
their management. Controls for each risk are
identified and the mitigating effect of these
controls is also assessed and recorded. All
controls are monitored and tested to ensure
these are working as stated and are providing
effective mitigations to the risks identified.
We measure both Inherent Risk, before
controls and mitigating actions, and the
resulting Residual Risk, which takes account of
our controls and management strategies.
The operating unit Heat Maps are reviewed at
Group level and their risks are incorporated
into the Group Risk Universe.
A schedule of Principal Risks is produced
which summarises the key risks for reporting
and monitoring at Audit Committee and Board
level.
Overview
PRINCIPAL RISKS
shareholder returns. The principal risks listed
here are taken from the Fenner Risk Universe
and are deemed “principal” due to their
overall risk ranking and their specific
relevance to the Group's business, strategy
and operations. Additional risks and
uncertainties not presently known to Fenner
or that Fenner currently consider immaterial
may also have an adverse effect on its
business.
The economic recovery continues to be slow and some markets remain
weak. In recent months, there has been considerable volatility in the
commodity markets and downgrading of growth forecasts across the
world. Although Fenner has successfully traded through previous cycles,
a substantial downturn in one or more of these key markets could have a
material adverse impact on the business.
Fenner has and will continue to benefit from underlying
volume growth in energy markets, other basic minerals and
the slow recovery in industrial markets. We continue to identify
and develop opportunities within each operation and across
the Group that are counter cyclical to help balance out any
market downturn.
Risk
Competitor activity
Owner
Executive Committee &
operational management
Our global competitor landscape is complex and dynamic. Commercial
activity by competitors or changes in their products or technology could
impact upon Fenner’s market share and profitability.
In addition to a diverse product range, market intelligence and
competitor analysis supports market activities and informs
investment in R&D and technical product development.
Risk
Climate change
Owner
The impact on the market for our goods, the way Fenner operates and
the ability to acquire raw materials could be driven by real or perceived
climate change and regulatory actions in response to that.
As well the as monitoring of government initiatives and public
opinion, Fenner has entered into alternative energy markets
including wind and seeks to diversify further into non-carbon
markets when appropriate opportunities arise.
Risk
Raw materials
Owner
Operational management
Fenner purchases a variety of raw materials which could be susceptible
to uncontrollable and rapid movements in price, leading to margin
erosion. There are limited or even single source suppliers for certain of
our raw materials. A loss of supplier could lead to an inability to produce
goods in a timely or efficient manner.
With the Group’s wide geographical spread and devolved
purchasing functions, Fenner utilises a wide range of
techniques including: long-term purchase contracts,
escalation clauses in sales contracts and dual sourcing. We
retain conversion know-how in-house and in specific
situations purchase base materials.
Risk
Liquidity and currency
Owner
Group Finance Director
Liquidity constraints could lead to reduced funds for further investment
or working capital requirements. Operating across a number of
territories adds complexity to managing liquidity and exposes Fenner to
currency variations. Longer-term issues arise from a cost base in one
currency and markets supplied in another. High foreign exchange
volatility increases management hedging costs.
Fenner has secure long-term debt finance and committed
facilities supported by sound banking and investor
relationships. Group treasury policy covers, inter alia, the use
of currency contracts, investment hedging policy and regular
reporting of trading exposures.
Risk
Major projects and
acquisitions
Owner
Chief Executive Officer,
Group Finance Director &
Executive Committee
Our investment programme requires selecting the correct investment
opportunities and designing, building and effectively operating
appropriate facilities. Issues also exist around successfully integrating
acquired businesses into the Group. In addition, there is a risk of
management focus becoming diverted from external market issues to
internal operational issues in undertaking new projects and acquisitions.
Group control, authority levels and approval processes are
supplemented by the use of experienced project managers.
Group acquisition procedures include due diligence and the
use of professional advisors, appropriate and enforceable
representations and warranties with detailed integration
planning.
Risk
Loss of intellectual
property
Owner
Operational management
Our products and processes have high levels of technical innovation and
know-how resulting in a strong brand, represented by recognised
trademarks. These rights are susceptible to theft, infringement, loss and
replication by competitors. This could lead to loss of competitive
advantage, loss of brand premium and loss of business.
Fenner actively registers, manages and enforces intellectual
property rights and monitors competitor activity both directly
and by use of specialist services and use of non-disclosure
and non-compete agreements. Appropriate steps are taken to
retain and incentivise key people.
Risk
Key personnel
Owner
Chief Executive Officer &
Executive Committee
The future success of Fenner is dependent on the continued services of
key personnel. Certain of our processes require specialist skills which
are not routinely available. A loss of key personnel, with associated IP
and know-how, could disrupt production or even our strategy.
The corporate culture and management style of Fenner is
augmented by bespoke terms and conditions of employment
for key personnel, including bonuses, pension and long-term
incentive plans.
Risk
Employee benefit
schemes
Owner
Fenner has a number of employee benefit schemes, including defined
benefit post-retirement and US healthcare schemes. Risks arise from
exposure to changes in interest rates, investment returns, dividends and
life expectancy which can increase year-on-year costs to Fenner.
Scheme structures are under continual review using
professional advisors. All options including insurance are
considered.
Risk
Key markets
Owner
Executive Committee
Controls and mitigation
Remuneration
Description and relevance
Governance
Risk and owner
Business Review
Fenner’s operations around the world are
exposed to a number of risks which could,
either on their own, or in combination with
others, have an adverse effect on the Group’s
results, strategy, business performance and
reputation which, in turn, could impact upon
22
Group Finance Director’s Review
RECORD
PERFORMANCE
Richard Perry
Revenue and operating profit
Engineered Conveyor
Solutions Division
Revenue
£593.4m
16%
2011: £510.7m
Group revenue increased by 16% to £830.6m
(2011: £718.3m). The effect of acquisitions
completed in the year contributed £12.8m and
the favourable translation effect of exchange
rate movements amounted to £4.5m, the
largest component relating to the stronger
Australian dollar.
In the ECS division, revenue increased by 16%
to £593.4m (2011: £510.7m) and in the AEP
division, revenue increased by 14% to £237.2m
(2011: £207.6m).
Underlying operating profit increased by 30%
to £118.8m (2011: £91.4m), a record
performance. The effect of acquisition activity
contributed £1.7m and the favourable
translation effect of exchange rate movements
amounted to £0.7m. Divisional profits
contributed were £84.4m (2011: £61.1m) from
the ECS division and £43.6m (2011: £38.2m)
from the AEP division.
Amortisation of intangible assets acquired
increased to £11.2m (2011: £8.9m), principally
due to acquisition activity.
Advanced Engineered
Products Division
Group operating profit increased by 30% to
£107.6m (2011: £82.5m).
Revenue
Net finance costs
£237.2m
14%
2011: £207.6m
Finance costs, net of finance income,
increased by £6.1m to £19.0m. This comprised
net interest payable of £14.9m (2011: £11.2m)
and notional interest of £4.1m (2011: £1.7m).
The increase in net interest payable principally
arose from the full year effect of the additional
cost associated with the drawdown of longterm funding from the private placement in the
last financial year compared with lower shortterm rates earned on amounts deposited.
The majority of the Group’s borrowing costs
are at fixed interest rates, principally arising
23
from the US dollar private placements and
related cross-currency swaps.
Notional interest comprises: amounts related
to defined benefit post-retirement schemes
and the unwinding of discount on provisions,
principally arising from deferred payments on
acquisitions, totalling £1.9m (2011: £1.7m); a
charge of £1.7m (2011: £nil) relating to an
increase in the redemption liability on the
purchase of non-controlling interests in
acquisitions resulting from an increase in the
projected profits compared to previous
estimates; and a charge of £0.5m (2011: £nil)
relating to an increase in the estimated
financial obligation under a cooperative joint
venture contract in China.
Taxation
The tax rate for the year was 30% (2011: 29%)
whilst the underlying rate was 29% (2011:
30%).
Although a large proportion of Group profits
are earned in the USA where marginal tax
rates are in excess of 35%, this was offset by
lower rates elsewhere in the world,
particularly in the UK, the Netherlands and
Canada.
Earnings per share and
dividends
Underlying earnings per share was 36.1p
(2011: 28.1p) and basic earnings per share was
30.3p (2011: 24.6p).
The interim dividend of 3.5p per share (2011:
2.65p) was paid on 5 September 2012. The
Board is recommending a final dividend of 7.0p
per share (2011: 5.35p) to make a total
dividend for the year of 10.5p per share (2011:
8.0p). This total dividend represents a
distribution of 29% (2011: 28%) of underlying
earnings.
The Group completed two acquisitions during
the financial year and three acquisitions after
the year end. In addition, after the year end, we
exchanged contracts on a further acquisition.
Acquisitions during the financial year:
Acquisitions made after the financial year end:
On 1 September 2012, the Group completed
the acquisition of substantially all of the
assets and liabilities of American Industrial
Plastics, Inc (“AIP”), based in Florida, USA.
Cash flow and net debt
The table below summarises the cash flows giving rise to the reduction in net debt.
2012
£m
2011
£m
79.8
(14.9)
(11.2)
Free cash flow
Acquisitions
Dividends
63.0
(34.3)
(18.0)
53.7
(29.7)
(14.6)
Cash generation
Exchange movements
Other movements
10.7
(4.7)
(1.9)
9.4
0.5
(1.3)
Reduction in net debt
Opening net debt
4.1
(101.8)
8.6
(110.4)
(97.7)
(101.8)
Closing net debt
Net cash generated from operating activities of £103.6m (2011: £79.8m) increased significantly
due to the higher profit and was after absorbing £8.3m (2011: £11.2m) of working capital to
support the 16% sales growth. Net capital expenditure increased to £28.3m (2011: £14.9m),
largely due to an expansion in capacity. This includes three projects to increase the
manufacturing capability of our ECS operations in Australia, the Netherlands and China. Net
interest paid was £12.3m (2011: £11.2m). The resultant free cash inflow increased to £63.0m
(2011: £53.7m).
After adverse exchange rate movements of £4.7m (2011: £0.5m favourable) and other increases
in debt of £1.9m (2011: £1.3m), closing net debt reduced by £4.1m to £97.7m (2011: £101.8m).
Gross debt amounted to £206.4m (2011: £206.1m) whilst cash and cash equivalents were
£108.7m (2011: £104.3m).
On 26 October 2012, the Group exchanged
contracts to acquire 100% of the share capital
of Australian Conveyor Engineering Pty Ltd
("ACE"), based in New South Wales. The
transaction is expected to complete at the end
of November 2012. ACE specialises in
supplying engineered conveyor solutions for
the design, manufacture and installation of
high capacity conveyor systems for both
surface and underground mining, with the
capability to take projects from the initial
concept to the commissioned conveyor
system. The acquisition furthers Fenner
Dunlop's strategy of being the supplier of
choice for engineered conveyor solutions in
Australia, offering mining customers
integrated solutions for improving the safety
and total cost of materials handling. Further disclosures of acquisitions after the
financial year end are given in note 35 to the
Group financial statements.
The net cash outflow on acquisition and disposal activity was £34.3m (2011: £29.7m), of which
£11.5m related to deferred amounts on prior year acquisitions. Dividends paid increased to
£18.0m (2011: £14.6m). The resultant cash generation of £10.7m (2011: £9.4m) was sufficient to
fund our organic and acquisitive growth initiatives.
All amounts above are based on exchange
rates at the dates of completion.
103.6
(28.3)
(12.3)
the acquisition of 100% of the share capital of
Mandals, based in Norway and Sweden.
Mandals is a manufacturer of innovative layflat and speciality hoses for use in demanding
applications and of circular looms for the
manufacture of the woven fabric used in the
production of hoses. The acquisition builds on
our expertise, providing performance-critical
applications to the agricultural,
infrastructure, potable water and oil and gas
markets. The initial cash consideration was
£12.5m, excluding working capital
adjustments, with contingent deferred
amounts estimated at £1.3m.
Remuneration
Net cash from operating activities
Net capital expenditure
Net interest paid
the acquisition of 100% of the share capital of
Norwegian Seals, which has operations in
Norway and the UK. Norwegian Seals
manufactures and distributes performancecritical seals into the oil and gas market. This
acquisition will allow the FAST operation to
exploit the North Sea market and enhance
Norwegian Seals' ability to build its growing
industry reputation and presence. The initial
cash consideration was £10.3m, excluding
working capital adjustments, with contingent
deferred amounts estimated at £5.7m.
Governance
In December 2011, the Group acquired
substantially all of the operating assets of
Further disclosures of acquisitions during the
financial year are given in note 33 to the
Group financial statements.
AIP is a precision machining company with
the ability to machine advanced polymers for
application in the oil and gas and medical
markets as well as manufacturing
performance precision components for a
range of niche applications including
aerospace. The initial cash consideration was
£16.7m with contingent deferred amounts
estimated at £6.3m.
Business Review
In September 2011, the Group acquired the
entire share capital of Transeals Pty Limited
(“Transeals”), a privately owned company
based in Perth, Australia. Transeals
manufactures and distributes seals used in
hydraulic equipment, currently serving the
western parts of Australia. This acquisition
allows the Hallite operation in Australia,
which is mainly east coast based, to develop
its aftermarket presence in the buoyant
mining and oil and gas markets of Western
Australia. The cash consideration was £8.1m.
Allison Custom Fabrication (“Allison”) in
Pennsylvania, USA. Allison specialises in the
design, engineering, machining and metal
fabrication of customised material handling
equipment, primarily for the mining markets
of Pennsylvania and West Virginia. This
acquisition further strengthens Fenner
Dunlop Americas’ position as the engineered
conveyor solutions provider in the Americas.
The initial cash consideration was £15.0m
with contingent and deferred consideration
estimated at £10.4m.
Overview
Acquisitions
24
Group Finance Director’s Review continued
Financing
The Group is financed principally by a mix of
equity, retained earnings, US dollar private
placement loan notes and committed bank
facilities. The principal loan facilities are
raised centrally whilst operating companies
supplement this funding with local overdraft
and working capital facilities.
During the year, the Group entered into new
five year committed revolving credit facilities
totalling £100m. These comprised an £80m
facility with a club of four major UK based
banks and a further bilateral facility of £20m
with one of the banks. These replaced
facilities totalling £145m which were due to
expire in the year.
In addition, the Group has US dollar private
placement loan notes totalling $290.0m.
These have the following maturity and interest
rate profile:
Principal
Maturity
Fixed rate
US$65.0m
1 Sept 2023
5.42%
US$55.0m
1 Sept 2021
5.27%
US$80.0m
1 Sept 2021
5.12%
US$90.0m
1 June 2017
5.78%
US$290.0m (£182.4m)
The Group’s total committed loan facilities at
31 August 2012, including the US dollar
private placements, were £305.7m. Within
this, the Group's committed bank facilities
were £122.7m (2011: £168.0m), of which
£100.0m of facilities with UK banks expire in
April 2017. At 31 August 2012, £106.2m (2011:
£146.6m) of these facilities were not drawn
down whilst uncommitted facilities were in
excess of £30m.
The principal financial covenants relating to
the committed loan facilities are the ratio of
net debt to EBITDA and interest cover for
EBITDA. Net debt must be less than 3.5 times
adjusted EBITDA. Adjusted EBITDA must be at
least 3 times the net interest charge. For
compliance with loan covenants, reported
EBITDA is adjusted for, inter alia, acquisitions
and non-cash items, which improves the
reported ratios.
Throughout the year under review, the Group
comfortably complied with its loan covenants.
Net debt to reported EBITDA was 0.7 times
(2011: 0.9 times). Reported EBITDA interest
cover was 9.4 times (2011: 9.9 times).
25
The private placements and new committed
bank facilities give the Group access to a
diversified range of committed loan facilities,
with a medium and long-term maturity
profile. The Group remains well placed to fund
and support its operations with continuing
access to medium and long-term debt
finance, cash resources and, where
necessary, shorter-term facilities.
Financial risk management
In the normal course of business, the Group is
exposed to certain financial risks, principally
foreign exchange risk, interest rate risk,
liquidity risk and credit risk. These risks are
managed by the central treasury function in
conjunction with the operating units, in
accordance with risk management policies
that are designed to minimise the potential
adverse effects of these risks on financial
performance. The policies are reviewed and
approved by the Board.
The exposures are managed through the use
of borrowings, derivatives and credit
management procedures. The use of
derivatives is undertaken only where the
underlying interest or currency risk arises
from the Group’s operations or sources of
finance. No speculative trading in derivatives
is permitted.
The Group has entered into cross-currency
swaps linked to the US dollar private
placement cash flows. In 2007, $27.2m was
swapped into €20.0m at a fixed rate of 5.05%,
maturing in 2017. In 2011, $44.7m was
swapped into AUD$45.0m at a fixed rate of
8.43%, maturing in 2023. These swaps provide
hedges against the Group’s net investments in
the euro and Australian dollars, at fixed
interest rates, and mirror the private
placement cash flows. These swaps have
been accounted for as hedges in accordance
with IAS 39 ‘Financial Instruments:
Recognition and Measurement’, with the
charge or credit recognised directly in other
comprehensive income in equity.
In the normal course of business, derivatives
have been used to hedge future nonfunctional currency cash flows arising from
trading transactions relating to the sale and
purchase of goods and services. The Group
has chosen not to hedge account for such
transactions under the requirements of IAS
39, recognising that cash flows through to the
maturity of the derivative are unaffected. In
compliance with IAS 39, all financial
instruments have been measured at their fair
value as at the balance sheet date. A charge
or credit to the income statement has been
recognised for the loss or gain on these
instruments. In addition, in accordance with
IAS 21 ‘The Effects of Changes in Foreign
Exchange Rates’, all foreign currency
monetary items have been retranslated at the
closing rate, with changes in value charged or
credited to the income statement.
Return on gross capital
employed
The return on gross capital employed has
increased to 24% (2011: 20%) due to the
improvement in underlying operating profit
and despite the effect on the capital base
from reinvesting capital expenditure at 1.4x
(2011: 0.8x) depreciation.
The progression in returns over recent years,
as shown in the Return on gross capital
employed chart, is an encouraging indicator of
strategic progress. The benefits of prior year
organic expansion investments are an
influential driver in this progression although,
in the short term, returns in a year can be
distorted given the commissioning and
market penetration timeline compared to the
initial capital spend.
Post-retirement benefits
The Group operates a number of defined
benefit post-retirement schemes for qualifying
employees in operations around the world.
The principal scheme is the Fenner Pension
Scheme which is based in the UK. The latest
formal actuarial valuation of the scheme by a
qualified actuary was carried out as at 31
March 2011.
The total defined benefit post-retirement
liability, as calculated by the schemes'
actuaries in accordance with IAS 19
'Employee Benefits' and recorded on the
balance sheet at 31 August 2012, increased to
£48.2m (2011: £31.7m). Of this amount, the
Fenner Pension Scheme represents £35.9m
(2011: £24.9m) and the overseas schemes
totalled £12.3m (2011: £6.8m). During the
year, the fair value of assets of the schemes
increased by £11.4m (2011: £11.8m),
Return on gross capital employed
25
20
%
15
10
5
0
2008
2009
2010
Year
2011
2012
Overview
Business Review
principally generated from the schemes’
equity investments and additional Group
contributions paid to reduce the deficit. The
present value of obligations increased by
£27.8m (2011: reduced by £2.0m), principally
as a result of a decrease in AA corporate bond
yields used to discount obligations. Further
details of post-retirement benefits are
disclosed in note 25 to the Group financial
statements.
Accounting policies
The Group financial statements have been
prepared in accordance with the accounting
policies described in note 1 to the Group
financial statements, in accordance with
International Financial Reporting Standards
as adopted by the European Union.
Governance
The Company financial statements have been
prepared in accordance with the accounting
policies described in note 1 to the Company
financial statements, in accordance with UK
Generally Accepted Accounting Practice.
Going concern
Remuneration
After making enquiries, the directors have
formed a judgement at the time of approving
the financial statements that there is a
reasonable expectation that the Company and
Group have adequate resources to continue in
operational existence for the foreseeable
future. For this reason, the directors continue
to adopt the going concern basis in preparing
the financial statements. In forming this view,
the directors have reviewed the Group’s
budget and cash flow forecasts against
availability of financing, including an
assessment of sensitivities to changes in
market conditions.
Richard Perry
26
Key Performance Indicators
MEASURING STRATEGIC
PERFORMANCE
OUR KEY PERFORMANCE INDICATORS, WHICH INCLUDE FINANCIAL AND NON-FINANCIAL
MEASURES, ENABLE THE BOARD TO MONITOR PERFORMANCE. THEY HAVE BEEN SELECTED AS
BEING IMPORTANT TO THE SUCCESS OF THE GROUP IN DELIVERING ITS STRATEGIC OBJECTIVES.
Underlying earnings per share
£118.8m 36.1p
30%
2011: £91.4m
This is operating profit stated before
amortisation of intangible assets acquired
and notional interest.
Net debt/EBITDA
0.7x
2011: 0.9x
This is a measure of the Group’s ability to
service its debt obligations. It is calculated
by dividing net debt (defined as short and
long-term borrowings less cash and cash
equivalents) by the profit for the year after
adding back net finance costs, taxation,
depreciation, amortisation and exceptional
items. Financial covenants require that net
debt must be less than 3.5x adjusted
EBITDA. Reported EBITDA is adjusted for,
inter alia, acquisitions and non-cash items.
27
28%
2011: 28.1p
This is a measure of performance and
growth. It is calculated by dividing the
underlying profit for the year by the basic
weighted average number of shares in
issue and ranking for dividend.
EBITDA interest cover
9.4x
2011: 9.9x
This measure provides an indication of
whether the Group’s profit is sufficient to
cover its interest obligations. It is calculated
by dividing operating profit before
depreciation, amortisation and impairment
charges by net interest payable on bank
overdrafts and loans, other loans and
bank deposits. Financial covenants
require that adjusted EBITDA must be at
least 3x net interest payable.
Overview
Safety performance
120
4
120
90
3
60
2
LTIs
160
£’000
5
80
40
0
1
30
04 05
06
07
08
09
10
11 12
Year
Return on gross capital employed
2011: 20%
06
07
LTIs
08
Year
09
10
11
12
LTIFR
0
Lost Time Incidents (“LTIs”)
The number of incidents connected with
work which results in an injured person
being away from work or unable to do
the full range of their normal duties, not
including the day of the incident.
Lost Time Incident Frequency Rate
(“LTIFR”)
The number of lost time incidents per
200,000 hours worked.
Capital expenditure/depreciation
1.4x
2011: 0.8x
This is a measure of investment in the
future strength of the Group’s operational
assets and the ability to support growth. It
is calculated by dividing capital
expenditure per the cash flow statement
by depreciation and amortisation
(excluding intangible assets acquired).
This is a measure of performance
relative to amounts invested. It is
calculated by dividing underlying
operating profit by gross capital
employed. Gross capital employed is
defined as the average of the opening
and closing non-current assets
(excluding deferred tax and derivative
financial instruments), inventories,
trade and other receivables and trade
and other payables.
05
24%
04
Remuneration
Total annual third party revenue (at
constant exchange rates) divided by the
average number of employees derived
from a simple total head count (with no
distinction between full time, part time,
temporary or casual employees). Where
employees are employed for part of a
year, the average number is calculated
on a pro-rata basis.
0
Governance
150
LTIFR
200
03
Business Review
Sales per employee
28
Directors’ Report Governance
The Board
THE
BOARD
Mark Abrahams (57)
Chairman
Appointed to the Board as Group
Finance Director in October 1990,
became Chief Executive Officer in May
1994 and non-executive Chairman in
March 2011. He is also non-executive
Chairman of Inditherm plc and Vice
Chairman of The Leeds Teaching
Hospitals NHS Trust.
Richard Perry (62)
Appointed to the Board in September
1994. He is also a non-executive
director of Scapa Group plc.
29
Nicholas Hobson (53)
Appointed to the Board in March 2011
after being with the Group for over 20
years. He was the Divisional Director of
the Advanced Engineered Products
division for nine years prior to being
appointed Chief Executive Officer.
Vanda Murray OBE (51)
Senior Independent Director (since 11
January 2012)
Appointed to the Board in January 2012.
She was formerly Chief Executive Officer of
Blick plc and now holds a portfolio of nonexecutive director roles including
Chemring plc, Carillion plc and The
Manchester Airport Group plc.
Overview
Business Review
Governance
David Buttfield (66)
Senior Independent Director (until
11 January 2012)
Debra Bradbury (47)
Company Secretary
Joined the Company in April 2001 and was
appointed Company Secretary in July 2002.
Non-executive
Audit Committee
Remuneration Committee
Nomination Committee
Appointed to the Board in April 2010. He
is also non-executive Chairman of
Siemens Holdings plc and Chairman of
the German-British Chamber of
Industry & Commerce.
Alan Wood (65)
Appointed to the Board in September
2010. He was formerly an executive
director of Johnson Matthey plc and is a
non-executive director of GKN plc and a
non-executive director of Low & Bonar
PLC.
Remuneration
Appointed to the Board in January 2003.
He was formerly an executive director
of D S Smith Plc.
John Sheldrick (63)
30
Corporate Governance
HONESTY, INTEGRITY,
DECENCY AND HIGH
BUSINESS STANDARDS
Mark Abrahams
Chairman
Foreword from the Chairman
I firmly believe that a well run company is one
with high standards of governance, a
commitment and adherence to strong
business ethics and one where there is trust
and mutual respect throughout the whole
corporation. The strength, growth and
resilience of Fenner is built on deeply
embedded core values which are based on
principles of strong governance and include:
do no harm (to employees, the environment or
corporately), a strong culture of autonomy
with accountability and empowerment,
honesty, integrity and decency, delivering
excellence and adherence to high business
standards.
Both I and the rest of the Fenner Board agree
with the statement in the UK Corporate
Governance Code (the “Code”) that the
highest standards of governance help
engender effective, entrepreneurial and
prudent management and contribute towards
the long-term success of the Company; the
Board adopted the Code in 2011 and
continues to work in accordance with the
Principles outlined within it.
New Board member
During the year, we welcomed Vanda Murray
to the Board as Senior Independent Director.
Vanda has a background in sales and
marketing, in companies with a wide
geographic reach appropriate to Fenner’s
business interests. Vanda brings
complementary skills, strengths and
expertise to the Board and she has proven to
be a very valuable member of it.
Governance and compliance visits
During the course of the summer, Vanda and I
have undertaken a number of visits to our
major shareholders for the purposes of
discussing our corporate governance.
31
Meetings were offered to all our top 20
shareholders, many of whom accepted. This is
something we intend to do periodically and
invitations for meetings have been extended
to the proxy voting agencies. These meetings
have provided an opportunity for both the
Company and major shareholders to gain
insight, mutual understanding and comfort
over the corporate governance policies in
operation at Fenner. These meetings are
entirely separate to shareholder meetings
that the executive directors undertake. The
meetings have been very productive and
constructive and confirmed widespread
agreement and support for the Group from
the major shareholders.
Board independence
The Board continues to assess the skills set
required to enable it to be effective. The Board
comprises four non-executive directors, three
of whom are considered to be independent
and one, David Buttfield, who is deemed by
the Code to no longer be independent due to
his length of tenure and who will be retiring at
the conclusion of the AGM in January 2013. In
addition, there are two executive directors and
myself as Chairman and we are supported by
the Group Company Secretary. Given my
previous role as Chief Executive Officer of the
Group, I was not independent on appointment,
nevertheless the important strategic reasons
for my succession as Chairman were agreed
with the major shareholders prior to my
appointment. We continue to ensure that we
have the right balance of independent
directors on the Board so that we are
compliant with all other main provisions of
the Code and to provide assurance to our
shareholders that Board decisions are taken
in the long-term interests of the Group and
therefore the shareholders, employees and
wider stakeholders as a whole.
Board visits
The Board has made several site visits to
operations around the world, reflecting the
spectrum of business interests in the Group.
Local management teams gave presentations
to the Board at each visit, including an overview
of operating unit strategy and each visit
included an in depth tour of the facility. Further
site visits are planned for 2013 and it is the
intention that at least one Board meeting each
year will be held at one of the operations.
These visits help to broaden and deepen the
non-executive directors’ knowledge and
understanding of the Group’s business.
Initiatives and activities
The Board, cognisant of the Lord Davies report
on diversity, reviewed the Company’s policy on
diversity. This review resulted in a Board
Diversity Statement being implemented. The
Board Diversity Statement is discussed in
more detail on pages 34 to 35. Other initiatives
in the year include building on and refining the
review of strategy that was started in 2011 and
which is anticipated to be completed later this
year; this has been a rigorous top down and
bottom up review which resulted in the
strategic goals outlined in the Chief Executive
Officer’s Review on page 8. A new Risk
Workshop programme was introduced as part
of the Risk Universe risk management system
with presentations being made to the Audit
Committee on progress to date; this
programme offers each operation the
opportunity to look at their operations in a
more objective and strategic way and evaluate
their specific risks, controls and related
mitigation strategies.
A detailed review of Risk Management
and Principal Risks are set out on
pages 21 to 22
During the year, the Board approved five
acquisitions. Allison Custom Fabrication
received the annual HSE review from the
Group HSE Coordinator;
approved the new five year RCF bank
facilities;
adopted the corporate governance
principle that all directors retire on an
annual basis and put themselves up for
re-election at the AGM;
adopted a written description of the
specific responsibilities of the Chairman
and Chief Executive Officer.
Compliance with the
provisions of the Code
The Board reviewed the requirements of the
Code and has complied with the provisions
and spirit of the Code. The Chairman was not
Flow of responsibilities
Internal Audit
Operational
& Financial Review
Audit
Committee
The Board
Executive Directors
Remuneration
Committee
Risk Management Review
H&S Framework
Group Operations
Nomination
Committee
This report sets out in more detail what we
have done in the year, how we have applied
the Principles of the Code, including any
areas of divergence from the Code, and what
initiatives we are examining. The report also
explains how the Board and its Committees
are structured and highlights changes to the
Board during the year.
Role and responsibilities of the Board
The Board provides strong leadership for the
Company, giving effective management and
oversight to the operations to promote the
long-term objectives and strategy of the Group.
It ensures that there are highly competent and
The Chairman and Chief Executive Officer
and how responsibilities are divided
The roles of Chairman and Chief Executive
Officer are separate and distinct and have
been codified into a written description of
specific responsibilities. The principal
responsibility of the Chairman is for the
leadership and effectiveness of the Board
whilst the principal responsibilities of the
Chief Executive Officer are for the operational
performance of the Group, promoting a strong
health and safety ethos and communicating
the expectations of the Board in relation to the
Company’s culture, values and behaviours.
I have started the Board evaluation process
and an external facilitator has been
appointed, although the full evaluation
process is not expected to complete before
the end of the calendar year. Further details of
this process are given on page 35.
What is our approach to corporate
governance?
The Board expects and demands strong
governance and controls throughout the
Group. This is particularly important as the
culture of the Group is one of entrepreneurial
leadership, encompassing autonomy and
accountability; this is Board led and cascaded
down to all Group operations to ensure that
they share the same vision, values and
standards. The performance of the operations
and the management teams is reviewed by
the Board via regular reports, meetings and
presentations and the Board plays a key role
in reviewing strategy, risk and the
management of risk. Shareholders’
requirements are also managed by the Board
and it acts as a conduit between shareholders
and operations to ensure that their interests
are aligned. The aim is to maintain a Board
with the right balance of skills and experience
to help govern and lead the Company.
Remuneration
introduced the webcast presentation of
our financial half year results; this
initiative will be built on and developed
with the aim of further improving our
shareholder communications; and
Leadership
Specific matters are reserved for the Board’s
consideration under a formal schedule which
is reviewed on an annual basis. Under that
schedule and in addition to fulfilling the role
set out above, the Board reviews trading
performance and business strategy, approves
significant capital expenditure including
acquisitions and disposals, manages relations
and communication with shareholders,
considers senior management appointments,
formulates policy on key issues and approves
Group policies. The Board has formal Board
meetings throughout the year to deal with
prescribed matters and to receive the reports
of the executive directors. Between formal
meetings, the Chairman and non-executive
directors have access to the executive
directors and the Group Company Secretary
and do meet with the members of the
Executive Committee throughout the year.
Day-to-day management and operational
matters are delegated to a duly authorised
Executive Committee comprising senior
executives whilst other specific Board level
matters are delegated to sub-committees of
the Board. Details of the composition and
purpose of these delegated Committees are
set out on pages 33 to 34.
Governance
reviewed the corporate broking
arrangements and appointed Citigroup as
a joint broker alongside Jefferies Hoare
Govett;
This Corporate Governance report should be
read in conjunction with the Business Review
on pages 7 to 28, Other Statutory Information
on pages 40 to 42 and the Board
Remuneration Report on pages 43 to 49. The
information required under Rule 7.2.6 of the
Disclosure and Transparency Rules of the
Financial Services Authority (“FSA”) is
included on pages 40 to 42.
professional management teams in place
around the Group with robust controls and
financial and commercial expertise to ensure
the long-term success of the Company.
Business Review
In addition to the above, the Board, amongst
other matters, covered the following:
considered to be independent on appointment
having previously been the Chief Executive
Officer; the reasons for this appointment were
explained in full to shareholders in last year’s
Annual Report, where it was also noted that
the appointment was made after extensive
consultation with major shareholders.
Overview
completed in early December 2011.
Norwegian Seals, American Industrial
Plastics and Mandals completed in early
September 2012. In October 2012, we
exchanged contracts to acquire Australian
Conveyor Engineering. This transaction is
expected to be completed in November 2012.
All of these acquisitions were discussed in
depth by the Board, covering the strategic fit,
the value to shareholders that each offered
and the management and integration of the
acquired businesses. These acquisitions,
whilst small, contribute to the Group strategy
and will help maintain its strong, growing and
resilient characteristics.
32
Corporate Governance continued
The role of the Chairman
Mark Abrahams ensures that he fulfils the role
of a non-executive Chairman professionally
and properly with all due consideration being
given to strong and effective governance whilst
simultaneously preserving the culture of the
Company. The presence of four non-executive
directors, three of whom are independent, also
ensures that no one individual has unfettered
powers in terms of decision making or Board
direction. The Chairman sets the overall tone;
he promotes strong leadership and an effective
Board, fosters the vision, values, governance
standards and ethical behaviour of the
Company, encourages an atmosphere of
openness and invites robust and constructive
debate around the Board table. The Chairman
sets the Board agenda, chairs the meetings
and ensures that directors receive timely and
clear information.
The role of the non-executive directors
The non-executive directors bring
independence of mind, experience and
complementary skills to the Board. They
engender constructive debate and challenge
during Board discussions and help develop
strategy. They scrutinise the performance of
management, satisfy themselves on the
integrity of the financial systems, controls and
risk management and determine the levels of
remuneration for the executive directors.
Vanda Murray joined the Board on 11 January
2012 and became the Senior Independent
Director, taking over from David Buttfield. The
role of the Senior Independent Director,
amongst other matters, is to meet the Code
requirements and act as a sounding board for
the Chairman and serve as an intermediary for
the other directors as necessary. The Senior
Independent Director is available to
shareholders and she, along with the
Chairman, met with the corporate governance
heads of several major shareholders during
the year. These visits, which are separate to the
analyst meetings that the executive directors
attend, help to foster the relationship between
the Company and its shareholders, help the
Company better understand the requirements
of its major shareholders and allow
shareholders to have access to the Company to
raise concerns or issues or to confirm that they
are happy with the performance of the Company
and the way it is being governed. These
meetings will take place on a regular basis;
invitations were also extended to the proxy
voting agencies as well as major shareholders
although not all organisations have taken up
the offer of a meeting.
How are we structured to ensure good, strong governance?
Audit Committee
Executive Committee
Role
Responsible for the oversight of the
Company’s financial reporting, internal
controls and risk management and
managing the relationship with and
effectiveness of the external auditors.
Role
Responsible for determining the
remuneration packages of the executive
directors and other senior executives
and advises on executive remuneration
policy issues, as well as reviewing the
appropriateness of the remuneration
policy. The Committee administers the
long-term Performance Share Plan.
Role
Responsibilities include reviewing the
composition of the Board, the
identification and nomination of
candidates to fill Board vacancies and
considering succession planning for all
Board positions and senior executives.
Role
Responsibilities include day-to-day
management of the Group and
operational matters.
Committee Chairman
John Sheldrick
Committee Chairman
Alan Wood
Committee Chairman
Mark Abrahams
Committee Chairman
Nicholas Hobson
Non-executive directors
Alan Wood
Vanda Murray (i)
David Buttfield (ii)
Vanda Murray (i)
John Sheldrick
Vanda Murray (i)
Alan Wood
John Sheldrick
Executive director
Richard Perry
Membership
Executive director
Nicholas Hobson
Other members
Group Company Secretary:
Debra Bradbury
Managing Directors of operations:
David Landgren
David Jones
Nick Grasberger
John Pratt
Edwin Have
John Mullineaux
Corporate Development Director:
Richard Morello
Others who are invited to attend from time to time
External auditor
Chairman
Group Company Secretary
Group Financial Controller
Group Treasurer and Head of Tax
Group Business Risk Manager
Senior Internal Auditor
i.
ii.
33
Chairman
Independent external advisors
Vanda Murray was appointed to the Committee on 11 January 2012
David Buttfield resigned from the Committee on 11 January 2012
External advisors as required
Group Business Risk Manager
Group HSE Coordinator
External advisors as required
Terms of reference of the Committees of the
Board
The terms of reference of the Audit,
Remuneration and Nomination Committees
are reviewed at least annually and are
available to view on the Group’s website at
www.fenner.com or upon request to the Group
Company Secretary.
Independence
Biographies of the Board, setting out their
current appointments and experiences, are
set out in The Board on pages 29 to 30
The Board reviewed the Lord Davies report on
diversity and women on boards and developed
a Board Diversity Statement. All appointments
are made on individual merit regardless of
gender, ethnicity or religious beliefs; the
principal concern of the Group is to ensure all
candidates are of appropriate experience,
ability and fit for the role. The current Board
comprises six male directors and one female
Gender
14%
43%
43%
14%
Independent non-executive directors
Chairman
Non independent directors
86%
Male
Female
The Remuneration Committee received advice
during the year from AON Hewitt and Deloitte
LLP in relation to director and senior
executive remuneration and the Performance
Share Plan. AON Hewitt has no other
connection with the Company. Deloitte LLP
provides general consulting advice to the Group.
Activities
During the earlier part of the year, the
Committee finalised the appointment of
Vanda Murray as a new non-executive director
and Senior Independent Director.
Composition of the Board
The Board currently comprises the nonexecutive Chairman, four non-executive
directors, the Chief Executive Officer and
Group Finance Director and it is supported by
the Group Company Secretary. The balance of
independence on the Board is carefully
maintained and it has the appropriate balance
of skills, experience, independence and
knowledge necessary for the operation of an
effective and robust Board. The non-executive
directors have extensive experience at
executive and non-executive Board level of
running international industrial engineering
companies and bring these skills to bear at
Board meetings.
Remuneration Committee governance
The Remuneration Committee comprises
three independent non-executive directors
and is chaired by Alan Wood. Vanda Murray
joined the Committee on 11 January 2012 and
David Buttfield stepped down from the
Committee as he was no longer considered to
be independent under the Code. Neither the
Board Chairman nor the Chief Executive
Officer are members of the Committee
although they can be invited to attend. The
Chief Executive Officer, if invited to attend,
does not participate in any decision in relation
to his own remuneration. The Committee has
the power to request the attendance at
meetings of any director or Group employee
as considered appropriate.
Nomination Committee governance
The Nomination Committee comprises the
Chairman, the independent non-executive
directors and the Chief Executive Officer and
is chaired by Mark Abrahams. The Committee
generally meets at least twice a year and has
the power to request the attendance at
meetings of any director or Group employee
as considered appropriate.
Effectiveness
Remuneration
Responsibilities
The Remuneration Committee is responsible
to the Board for determining the remuneration
packages of the executive directors and other
senior executives and advises on executive
remuneration policy issues, as well as
reviewing the appropriateness of the
remuneration policy. The Committee
administers the long-term Performance Share
Plan. It is also consulted on the granting to
certain employees of an executive cash longterm incentive plan with performance
measures aligned with growth in the
underlying earnings per share of the Company
over a three year measurement period.
Responsibilities
Terms of reference set out the Nomination
Committee’s role and duties. These include
reviewing the composition of the Board, the
identification and nomination of candidates to
fill Board vacancies and considering succession
planning for all Board positions and senior
executives. The Committee is cognisant of the
Board Diversity Statement and applies the
principles of that Statement when recruiting
candidates to the Board. Specific diversity
targets will not be set; instead each candidate
is assessed on their own individual merits,
experience and suitability for the role although
the Committee and Board do value diversity of
perspective, experience and opinion as this
assists in promoting a well-balanced and
effective Board.
Governance
The remuneration policy of the Company
is set out in the Board Remuneration
Report on pages 43 to 49
The work, responsibilities and
governance of the Audit Committee
are set out on pages 38 to 39
Role of the Executive Committee
The Executive Committee is chaired by the
Chief Executive Officer and consists of the two
executive directors, the Group Company
Secretary and seven members of the Group’s
senior management including senior
executives from the operations. The Executive
Committee meets at least six times a year and
deals with the daily management of the Group
through powers delegated to it by the Board.
The Committee oversees and manages the
operational, financial and safety performance
of the Group, helps to set strategy, identifies
and manages risk and is instrumental in
identifying and managing acquisitions along
with the local management teams.
Business Review
The role of the Committees
Audit Committee
Overview
There are four non-executive directors on the
Board, three of whom are considered to be
independent under the Code. David Buttfield
stepped down as Senior Independent Director at
the conclusion of the AGM on 11 January 2012
and also stepped down from the Committees of
the Board in line with Code requirements; he
will be retiring from the Board in January 2013.
The non-executive directors have broad and
valuable experience, knowledge and skills and
are independent in character and judgement.
There are no known relationships or
circumstances which are likely to affect, or
could appear to affect, their judgement.
34
director. The Board does not intend to set
specific diversity targets because it could
fetter the ability to appoint the best candidate
based on merit alone which would be against
Board and Group philosophy.
Appointments to the Board
The Nomination Committee manages Board
appointments and agrees the candidate
specification, which sets out the type of skills,
experience, qualifications and knowledge a
preferred candidate should ideally have; this
is agreed and discussed with external
independent recruitment consultants. The
Board considers diversity, including gender,
when recruiting new candidates. All candidates
are chosen on merit, against the objective
criteria set in the candidate specification,
regardless of race, gender or religious beliefs
and therefore in line with the Board Diversity
Statement. Board succession is borne in mind
and discussed as part of the process.
Commitment
All Board members are expected to be able to
devote sufficient time to the Company to
discharge their responsibilities effectively.
Board members are expected to attend all
main Board and Committee meetings and have
sufficient time available to prepare for such
meetings. Executive directors cannot hold more
than one non-executive directorship in a FTSE
100 company although currently neither of the
executive directors holds such a FTSE 100 role.
Development, information and support
New Board appointments receive a full
tailored induction when joining the Company
which includes meetings with the Chief
Executive Officer, Group Finance Director and
the Group Company Secretary individually as
well as with key members of the management
team from health, safety and environment,
finance, tax and treasury, risk management
and business development. New Board
appointees are given a tailored induction pack
along with an explanation of different areas.
An example of a typical Board induction
programme is given below:
The Group Company Secretary is available to
all Board members. She is responsible for
ensuring that the Board follows procedures,
providing information, guidance and advice as
well as ensuring that the Board members are
kept up to date on governance, regulations,
development and best practice.
Director induction programme
Vanda Murray
The induction programme for Vanda
Murray covered:
Company structure, policies, procedures
and strategy. This included Group
structure, history, strategy, future
direction, introduction to key people, Board
practices, policies, procedures and
compliance policies and the health and
safety Framework (which is explained in
more detail on pages 51 to 52) including a
copy of the Framework DVD and policy.
Industry, products, territories and
competitive environment. An overview of
the Group’s operations, products,
territories and markets. Vanda visited
several UK operations as part of the
induction covering both ECS and AEP
divisions, meeting with local management.
The Chairman, via the Group Company
Secretary, ensures that information is
submitted to the Board and its Committees in
a timely manner so that all documents, papers,
briefing notes, proposals and financial
Meetings of the Board
The attendance of each director at Board, Audit Committee, Remuneration Committee and
Nomination Committee meetings is set out below.
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Non-executive
director
meetings
Number of meetings during the year
6
3
6
2
3
Chairman
M S Abrahams
6
3*
6*
2
3
Executive directors
N M Hobson
R J Perry
6
5(1)
3*
3*
6*
1*
2*
0*
-
V Murray (from 11 January 2012)
D F Buttfield
A J Wood
J N Sheldrick
5
6
6
6
2
3(2)
3
3
5
6(2)
6
6
1
2(2)
2
2
3
3
3
3
* By invitation
(1) Richard Perry was unable to attend one main meeting due to personal reasons but did fully brief the Chairman ahead of the meeting
(2) By invitation for meetings held after 11 January 2012
35
information can be reviewed ahead of meetings
to enable the Board to discharge its duties
proficiently. We have improved access and
timeliness of information to the Board with the
adoption of electronic board papers, dispensing
with the need for paper board packs and
enabling the Board to access information and
archive material quickly and efficiently.
The Board has access to independent
professional advice at the Company’s expense
should they require it to discharge their duties.
Ensuring an effective Board
The Board believes that maintaining the right
balance of skills, experience, knowledge and
independence is crucial in maintaining an
effective Board and it is confident that the
current Board structure and membership
achieves this aim. Board members interact
well with each other and with wider
management thereby helping to ensure that
all Board members are able to make
meaningful and cohesive contributions to
Board discussions and decisions.
Board evaluation
The Chairman conducted a rigorous
evaluation of the Board last year and an
independent external evaluation has been
started in the year under review. The external
facilitator has met with each Board member
individually, starting with the Group Company
Secretary, and will review the Board, its
processes, composition, effectiveness,
adequacy and timeliness of information,
quality of Board papers, balance of skills,
understanding of strategy, communications
with and understanding of shareholder
issues, effectiveness of the Committees and
the performance of the Chairman. The full
evaluation is expected to be completed by the
end of the calendar year 2012. The Board
therefore expects to be able to report more
fully on the process and outcome next year.
Relations with shareholders
Communicating with shareholders
The Company encourages regular dialogue
with its major shareholders, private client
brokers and also with private investors at the
AGM. There are regular face to face meetings
throughout the year with major shareholders
along with briefings with brokers and
analysts. Whilst most meetings are conducted
by the Chief Executive Officer and Group
Finance Director, this year, there has been a
In relation to the AGM:
Key procedures within the internal control
structure are:
the identification of major business and
insurance risks faced by the Group’s
operations, by both the Board and senior
management, and the determination of
the most appropriate course of action to
deal with these risks;
central review and approval procedures in
respect of major areas of risk such as
acquisitions and disposals, litigation,
treasury management, taxation and
environmental issues;
a clear management structure with well
defined lines of responsibility and the
appropriate levels of delegation;
regular review of the Group’s operating
units by operational and executive
management and monthly reports from
the senior managing directors;
proxy forms allow shareholders to direct
their proxy vote either for or against the
resolution or to withhold their vote;
a structured process for appraising and
authorising capital projects which
includes clearly defined authorisation
levels; projects are subject to postinvestment appraisals;
the proxy count is available at the AGM in
respect of each resolution after it has
been dealt with on a show of hands;
the Notice of Meeting, the Annual Report
and any other related papers are made
available to shareholders more than one
month before the meeting; and
Conflicts
The statutory duties for directors relating to
conflicts of interest are set out in the
Companies Act 2006. No conflicts arose
during the year and the Board continues to
comprehensive budgeting systems with
an annual budget approved by the Board;
monthly results are reported against
budget and revised forecasts for the year
are prepared regularly;
an internal programme of monitoring
visits by the internal audit team, as
a programme of business risk reviews
with operational management focusing on
non-financial controls and risk
management.
Statement of directors’
responsibilities
The directors are responsible for preparing
the Annual Report, the Board Remuneration
Report and the financial statements in
accordance with applicable law and
regulations.
Company law requires the directors to
prepare financial statements for each
financial year. Under that law the directors
have prepared the Group financial statements
in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by
the European Union and the parent company
financial statements in accordance with
United Kingdom Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards and applicable law).
Under company law the directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and the
Company and of the profit or loss of the Group
for that period. In preparing these financial
statements, the directors are required to:
select suitable accounting policies and
then apply them consistently;
make judgements and accounting
estimates that are reasonable and
prudent;
state whether IFRS as adopted by the
European Union and applicable United
Kingdom Accounting Standards have been
followed, subject to any material
departures disclosed and explained in the
Group and parent company financial
statements respectively; and
prepare the financial statements on the
going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
shareholders are invited to ask questions
during the AGM as well as having an
opportunity to meet the Board before and
after the formal meeting.
well established consolidation and
reporting systems for both the statutory
and monthly management accounts;
monthly, half yearly and annual financial
results are prepared by the consolidation
team and reviewed by management, with
financial reports distributed to all Board
members;
compliance policies are applied including
a Code of Business Conduct, an Antibribery & Corruption Policy and a
Whistleblowing Policy; and
separate resolutions are proposed for
each substantially separate issue
including the receipt of the Annual
Report;
competition compliance programmes are
in place in several jurisdictions;
Remuneration
Constructive use of the AGM
Before the formal commencement of the
AGM, there is a presentation to the attending
shareholders by the Chief Executive Officer
and Group Finance Director, following which
shareholders are invited to ask questions. At
the conclusion of the formal business of the
AGM, all members of the Board make
themselves available to answer questions.
In accordance with the requirements of the
Code and the recommendations of the
Turnbull Guidance on internal control, the
directors can confirm that, after having
reviewed the effectiveness of the control
systems and arrangements, no significant
changes to material risks, control failings or
weaknesses have been identified that resulted
in unforeseen material losses. Whilst the
directors are responsible for the Group’s
system of internal control, like any system of
internal control, it can only provide reasonable
and not absolute assurance against material
misstatement or loss.
Governance
The Group’s website provides comprehensive
investor relations information for shareholders
to view. The website includes analyst
presentations, the current share price,
regulatory announcements, financial
performance information, shareholder
information and an investor relations contact
address. A new website is being designed which
will enhance shareholder information and give
further clarity on the Group and its businesses.
Internal Control
agreed with the Audit Committee, reviews
the compliance of each operating unit
with the Group's standard internal
financial control procedures;
Business Review
Shareholder views and comments are
communicated to the Board. The Board also
receives copies of all analyst and broker reports.
monitor events with a view to ensuring any
conflicts are handled appropriately.
Overview
series of meetings between shareholder
compliance and governance departments and
the Chairman and Senior Independent
Director. All Board members understand that
they have responsibility for engendering and
maintaining good relations and
communications with shareholders. Nonexecutive directors can request to be present
at meetings with major shareholders and will
be available to attend meetings as requested
by major shareholders.
36
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of
the Company and the Group and enable them
to ensure that the financial statements and
the Board Remuneration Report comply with
the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for
safeguarding the assets of the Company and
the Group and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities.
The Board believes it meets the Code
provision of presenting a balanced and
understandable assessment of the Company’s
position and prospects via its Annual Report,
Half Yearly Financial Report, Interim
Management Statements and through its
periodic analyst and shareholder
presentations.
The directors are responsible for the
maintenance and integrity of the Company’s
website. Legislation in the United Kingdom
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions. Each of the
directors, whose names and functions are
listed in The Board on pages 29 to 30 and
remain in office, confirm that, to the best of
their knowledge:
the Group financial statements, which
have been prepared in accordance
with IFRS as adopted by the European
Union, give a true and fair view of the
assets, liabilities, financial position and
profit of the Group; and
the Business Review contained on pages
7 to 28 includes a fair review of the
development and performance of the
business and the position of the Group,
together with a description of the
principal risks and uncertainties that it
faces.
Signed on behalf of the Board of Directors
Mark Abrahams
Chairman
7 November 2012
37
Overview
AUDIT COMMITTEE REPORT
John Sheldrick
Chairman of the
Audit Committee
During the year under review, the Committee
welcomed Vanda Murray to the Committee
following her appointment to the Board on 11
January 2012. David Buttfield stepped down
from the Committee on the same date as he
had completed nine years tenure with the
Company and was no longer considered to be
independent under the Code. I would like to
thank David for his very valuable contribution
to the Committee over the period.
Composition and governance
The Audit Committee operates under formal
written terms of reference which govern its
role and responsibilities.
approve the Charter for Internal Audit;
review the risk management systems and
reports which are outlined in more detail
in the Business Review on page 21;
review procedures for detecting fraud;
review the Whistleblowing Policy annually;
review the whistleblowing report semi
annually;
review the summary of Group insurance
policies and levels of deductibles;
make recommendations to the Board in
relation to the appointment or reappointment and remuneration of the
external auditors and their terms of
engagement, including approval of the
audit plan;
ensure that the external auditors are
independent, objective and effective;
annually review the policy on non-audit
work carried out by the external auditor;
this policy takes into account external
guidance relating to the provision of nonaudit services;
review the schedule of non-audit work
carried out by the external auditor in the
year;
review the financial statements of the UK
Fenner Pension Scheme;
review the terms of reference for the
Audit Committee on an annual basis; and
review the Group’s treasury policies.
The Committee also reviewed management’s
half year and full year results presentations
for analysts and shareholders.
Following consideration of the matters
presented to it and discussion with both
management and PwC, the Committee was
satisfied that the significant judgements
made were justified and that the financial
reporting disclosures made were appropriate.
Risk management and
internal control
Management of risks is essential to the
delivery of the Group’s performance and
therefore the Group has a continuous process
for identifying, evaluating and managing risk,
with the process itself being subject to
regular review and refinement. Risks are
reported to the Audit Committee twice a year
and the Committee has received a
presentation from an independent consultant,
Maxaim, who are helping to run the Group
Risk Workshop programme in conjunction
with the Group Business Risk Manager. The
Audit Committee reviews the effectiveness of
the Group’s system of internal control and
assures itself on the rigorousness of the
internal control process. The internal control
review covers operational, financial and
compliance controls. The Committee receives
a financial internal control report at least
twice a year from the Senior Internal Auditor.
The Audit Committee fulfils the requirements
of the Code and its work covers the following:
monitor and review the effectiveness and
performance of the internal audit function
including the approval of the internal
control programme and review visits and
meet with the Senior Internal Auditor at
least once a year;
Responsibilities and
activities during the year
review of internal financial controls and
the internal control management
systems;
The Audit Committee reviewed a wide range
of financial reporting and related matters in
respect of the Company’s half year and
annual results statements and its Annual
Report prior to their consideration by the
Board. In particular, this included a review of
the accounting on business combinations, the
significant judgmental areas of the
impairment of goodwill, the provisions on
inventory, warranty and taxation and the main
assumptions underlying retirement benefit
obligations. Reports highlighting key
accounting matters and significant
judgements were also received from
PricewaterhouseCoopers LLP (“PwC”) in
respect of the year end statements and
discussed by the Committee. Analysis to
support the going concern statement given on
page 26 was also reviewed.
Remuneration
The Committee is comprised of the three
independent non-executive directors and is
chaired by John Sheldrick. Vanda Murray was
appointed to the Committee on 11 January
2012 at the same time David Buttfield stepped
down as a Committee member. Neither the
Board Chairman, nor the executive directors
are members of the Committee although they
can attend by invitation. John Sheldrick, on
taking on the role of Chairman of the
Committee, met the requirement of having
had recent and relevant financial experience,
having been Group Finance Director of
Johnson Matthey plc from 1995 until his
retirement in 2009. The Group Company
Secretary acts as secretary to the Committee,
which also has access to the services of the
Group Finance Director, Senior Internal
Auditor, Group Business Risk Manager and
external professional advisors. The
Committee can request the attendance at
meetings of any director, external auditor or
Group employee as considered appropriate.
The Committee meets with the external
auditors without the presence of management
at two of its meetings during the year.
review analyst presentations at the half
and full year;
Financial reporting
Governance
The work and responsibilities of the
Committee are set out over the following
pages.
monitor the integrity of the Annual
Report, the Half Yearly Financial Report
and the Preliminary Results;
Business Review
Foreword by the Chairman of
the Audit Committee
38
Based upon the internal control and risk
reports, the Board determines the nature and
extent of the significant risks it is willing to
take in achieving strategic objectives and the
Board believes it does maintain sound risk
management and internal control systems.
A detailed review of Risk Management is
set out on page 21
Whistleblowing
To support the Group’s Whistleblowing Policy,
Fenner operates a Group-wide international
hotline. Run by an external and independent
third party, the hotline facilitates
arrangements whereby employees can make
(on an anonymous basis if preferred)
confidential disclosures about suspected
impropriety and wrongdoing. Any matters so
reported are investigated and escalated to the
Audit Committee as appropriate. A report
summarising all disclosures made during the
period is submitted to the Audit Committee
twice a year.
External Auditors
Independence
The Committee monitored the external
auditors’ compliance with applicable ethical
guidance and, in addition, considered the
independence and the objectivity of the
external auditors taking due account of all
appropriate guidelines.
The Committee received and reviewed written
confirmation from the external auditors on all
relationships that, in their judgement, may
bear on their independence. The external
auditors have also confirmed that they
consider themselves independent within the
meaning of UK regulatory and professional
requirements.
As a general principle, the external auditors
are excluded from consultancy work and
cannot be engaged by Fenner for other nonaudit work unless there are compelling
reasons to do so. The Group’s detailed policy
on the non-audit services which can be
provided by the external auditors is set out in
the table below. During the year, non-audit
services amounting to £162,000 were
incurred. This amount comprised tax
compliance (£15,000), tax advisory (£50,000)
and assurance services (£97,000), principally
relating to half year agreed upon procedures
and a non-statutory audit of special purpose
financial statements.
Effectiveness and reappointment
The Committee evaluated the performance of
the external auditors during the year and
concluded that this was satisfactory. The
performance of PwC will continue to be
reviewed annually.
Following the review, the Committee
concluded it was appropriate to recommend
to the Board PwC’s appointment as the
Company’s external auditors. The risk of PwC
Policy on non-audit services by the external auditors
Prohibited non-audit services
audit their own work;
taxation services;
make management decisions for the
Company;
specific projects on internal audit where
the scope and management is
determined by the Committee;
act as advocate for the Company;
authorise, execute or consummate a
transaction on behalf of the Company;
determine which recommendation of the
audit firm should be implemented by the
Company;
internal audit services, other than
specific projects determined by the
Committee;
provision of IT consultancy;
legal services;
HR and recruitment consultancy; and
underwriting services.
39
Permitted non-audit services, subject to
approval by the Committee
staff secondments where management
is clearly directing and controlling the
secondee and on the basis that the
secondee cannot make management
decisions;
litigation support services, providing it
does not include significant advocacy
from the audit partner; and
corporate financial services involving
advisory, acquisitions and disposals and
due diligence.
leaving the market is considered remote since
they are one of the top four global accounting
firms.
Internal Audit
The Committee reviewed the results of audits
undertaken by internal audit and considered
the adequacy of management’s response to
any matters raised, including the
implementation of any recommendations
made. The Committee considered and
approved the 2012 internal audit programme.
The effectiveness of internal audit was
formally reviewed, taking into account the
views of directors and senior management on
such matters as objectivity, proficiency,
resourcing and audit strategy and planning.
No non-routine matters of concern were
drawn to the Committee’s attention by either
the external or internal auditors during the
year. Matters of material concern are
immediately drawn to the Committee’s
attention if and when they arise.
John Sheldrick
Chairman of the Audit Committee
7 November 2012
Other Statutory Information
Overview
Mark Abrahams
Chairman
Substantial shareholdings
As of 7 November 2012, the following
interests in shares have been notified to the
Company:
Principal activities
Interested party
% of issued
share capital
Standard Life Investments Limited
Threadneedle Asset Management
Holdings Limited
Lloyds Banking Group plc
Legal & General Group Plc
Kames Capital
Blackrock, Inc
Results and dividends
Directors and their interests
Group profit for the year
2012
£m
2011
£m
62.4
49.4
Interim 3.5p per share
6.8
5.1
(2011: 5.35p) – proposed
13.5
10.3
Total dividend
20.3
15.4
(2011: 2.65p) – payable
Final 7.0p per share
Donations
The names of the directors in office during the
year and their brief biographies and other
details, including other significant
commitments, are as shown on pages 29 to 30.
Details of the directors’ beneficial interests in
the ordinary shares of the Company, in share
options over the ordinary share capital of the
Company and in the Performance Share Plan
are given in the Board Remuneration Report
on pages 43 to 49.
Save as disclosed in the Board Remuneration
Report:
no director has any interest (beneficial or
non-beneficial) in any share or loan
capital of the Company or any of its
subsidiaries;
no change in the interests of directors has
occurred between the end of the financial
year and 7 November 2012; and
there were no contracts of significance
subsisting during or at the end of the
financial year in which a director of the
Company was materially interested.
Directors’ indemnities and
insurance cover
A qualifying third party indemnity (“QTPI”), as
permitted by the Company’s Articles of
Association and the Companies Act 2006, has
been granted by the Company to each of the
directors. Under the provisions of the QTPI,
the Company undertakes to indemnify each
director against claims from third parties in
respect of certain liabilities (excluding
criminal and regulatory penalties) arising out
of, or in connection with, the execution of their
powers, duties and responsibilities as
directors of the Company or any of its
subsidiaries. The Group also holds
appropriate Directors and Officers Liability
Insurance.
Supplier payment policy
Given the international nature of the Group’s
operations, the Group does not operate a
standard code in respect of payments to
suppliers. Individual operating units are
responsible for agreeing the terms and
conditions under which transactions with
their suppliers are conducted, including the
terms of payment. It is the Group’s policy that
payments to suppliers are made in
accordance with these terms. The average
creditor days for the Group during the year
ended 31 August 2012 was 54 days
During the year, the Group made donations of
£102,000 (2011: £151,000) to charitable, social
and community related organisations. It is the
Group’s policy that no donations are made to
political parties.
7.56
4.95
4.32
3.63
3.15
Dividends:
8.43
Remuneration
Fenner PLC is a holding company which is a
public limited company listed on the London
Stock Exchange and is incorporated and
domiciled in the United Kingdom. The address
of the registered office is Hesslewood Country
Office Park, Ferriby Road, Hessle, East
Yorkshire, HU13 0PW. The principal activities
of the Group are detailed in the Business
Review on pages 7 to 28.
In accordance with the recommendation in the
UK Corporate Governance Code, all directors
will be offering themselves up for re-election
on an annual basis. Vanda Murray was
appointed to the Board on 11 January 2012
and offers herself up for election, this being
her first opportunity to do so since her
appointment to the Board. The performance
of each of the directors continues to be
effective and they continue to demonstrate
commitment to the role and the Company.
Governance
The directors submit their management
report and the audited Group financial
statements for the financial year ended
31 August 2012.
Business Review
ADDITIONAL
DISCLOSURES
40
Other Statutory Information continued
(2011: 55 days). The Company does not have
any trade creditors.
Employment policy
The Group operates worldwide and its
employment policies are designed to meet
local conditions and requirements, but are
established on the basis of the best practices
in each country and support the principles of
the Universal Declaration of Human Rights.
Wherever the Group operates, it encourages
the provision of equal employment
opportunities, thereby ensuring a competent
and diverse workforce.
The Group’s policy is to secure good relations
between management and all employees, to
promote a better understanding of all the
issues, both internal and external, that
influence the Group’s business performance
and to improve performance and productivity.
Formal and informal meetings are used to
consult employees and to keep them informed
about the performance of the Group. The
practices of consultation and involvement vary
from country to country according to local
customs, legal considerations and the size of
the operation. The regular worldwide issue of
a Group magazine assists the process of
communication, as do briefing meetings,
information bulletins and meetings with
employee representatives.
The Group continues to recognise its social and
statutory duties to disabled persons and does
all that is practicable to meet this
responsibility. Full and fair consideration is
given to the recruitment, training, career
development and promotion of disabled
persons, bearing in mind the aptitude and
ability of the individual concerned. If an
employee becomes disabled whilst employed
by the Group, wherever possible, he or she will
continue to be employed in the same job. If this
action is not practicable or possible then every
effort will be made to find suitable alternative
employment. In these circumstances,
retraining would be made available using
Group resources as well as by contact with the
local disabilities employment advisor.
employment policy is set out in Corporate
Environmental policy
The Group recognises and accepts that
concern for the environment is an integral
and fundamental part of the Group’s
corporate business strategy.
environmental policy is set out in Corporate
41
The Group Environmental Policy can be
viewed at www.fenner.com
Financial risk management
Details of the Group’s financial risk
management policies are given in the
Business Review on page 25 and note 20 to the
Group financial statements on pages 81 to 83.
Other statutory information
Set out below is a summary of certain
provisions of the Company’s current Articles
of Association (the “Articles”) and the
Companies Act 2006 (“Companies Act”). If
further information is required, the relevant
provisions of the Articles and the Companies
Act should be consulted.
Share capital
Details of the Company’s issued share capital
as at 31 August 2012, together with details of
shares issued during the year, are set out in
note 9 to the Company financial statements on
page 104. Each ordinary share of the Company
carries one vote. The Company has a single
class of share capital which is divided into
ordinary shares of 25p each.
Dividends and distributions
Subject to the provisions of the Companies
Act, the Company may, by ordinary resolution,
from time to time declare dividends not
exceeding the amount recommended by the
Board. The Board may pay interim dividends,
including fixed rate dividends, whenever the
financial position of the Company, in the
opinion of the Board, justifies such payment.
Dividends will be paid pro-rata to the amounts
paid up on the shares. In specie and scrip
dividends can be authorised at a General
Meeting at the Board’s recommendation.
Voting rights
Subject to any rights or restrictions attaching
to any shares by or in accordance with the
Articles, at a General Meeting, every member
who is present in person or by proxy shall have
one vote and, on a poll, every member present
in person or by proxy shall have one vote for
each share. In the case of joint holders of a
share, the vote of the senior holder who
tenders a vote, whether in person or by proxy,
shall be accepted to the exclusion of the votes
of the other joint holders.
For this purpose, seniority shall be determined
by the order in which the names of the holders
stand in the register.
Restrictions on voting
Unless the Board determine otherwise, no
member shall be entitled to vote at a General
Meeting, either in person or by proxy, in
respect of any share held unless all moneys
are fully paid up on that share. In addition, no
member shall be entitled to vote if he has been
served with a notice after failure to provide the
Company with information concerning
interests in those shares required to be
provided under the Companies Act.
Deadline for exercising voting rights
Voting rights may be exercised in person, by
proxy or by a Corporate Representative. The
deadline for submission of proxy forms is not
less than 48 hours before the time appointed
for holding the meeting or adjourned meeting.
Variation of rights
Subject to the provisions of legislation, the
Articles specify that rights attaching to any
class of shares may be varied or abrogated,
either with the consent in writing of the holders
of three-quarters in nominal value of the
issued shares of the class being varied or with
the sanction of a special resolution passed at a
separate General Meeting of the holders of the
shares of that class.
Transfer of shares
All transfers of certificated shares may be in
any usual form or in any other form which the
Board may approve. The instrument of transfer
shall be signed by or on behalf of the
transferor and, unless the share is fully paid, by
or on behalf of the transferee. An instrument of
transfer need not be under seal. Transfers of
shares which are in uncertificated form are
effected by means of the CREST system.
The Board may refuse to register the transfer of a
share which is not fully paid, provided that the
refusal does not prevent dealings in shares in
the Company from taking place on an open and
proper basis. In the case of uncertificated shares,
the Board may exercise its discretion to refuse to
register a transfer of a share to the extent
permitted by the regulations and the facilities and
requirements of the relevant system.
The Board may also refuse to register the
transfer of a certificated share unless the
instrument of transfer is lodged, duly stamped
(if stampable) at the office or at another place
appointed by the Board, accompanied by the
certificate for the share to which it relates and
such other evidence as the Board may
reasonably require to show the right of the
transferor to make the transfer (and, if the
instrument of transfer is executed by some other
person on his behalf, the authority of that person
to do so); is in respect of only one class of shares;
and is in favour of not more than four transferees.
If the Board refuses to register a transfer of a
share, it shall send the transferee notice of its
refusal together with reasons for the refusal
within two months after the date on which the
instrument of transfer was lodged with the
Company.
The Board may appoint a director either to fill a
casual vacancy or as an additional director
provided that the appointment does not cause
the number of directors to exceed the
maximum prescribed by the Articles. A director
so appointed shall hold office only until the
next following AGM. If not re-elected at such
AGM, the director shall vacate office at its
conclusion.
As special business at the forthcoming AGM,
resolutions will be proposed to renew the
directors’ authority to allot shares, to disapply
the statutory pre-emption rights to a limited
extent and to make market purchases of
ordinary shares in the Company subject to
defined limits. Resolutions will also be
proposed to hold General Meetings on 14 days
notice. The proposed resolutions and further
details regarding these proposals are set out
in the Chairman’s explanatory letter
accompanying the Notice of Annual General
Meeting.
Mark Abrahams
Chairman
7 November 2012
Remuneration
The Board may exercise all the powers of the
Company to borrow money, to mortgage or
charge all or any part of its undertaking,
property, assets (present or future) and
uncalled capital and to issue debentures and
other securities whether outright or as
collateral security for any debt, liability or
obligation of the Company or of any third party.
Governance
Powers of directors
Subject to the provisions of the Companies Act
and Articles and to any directions given by
special resolution, the business of the Company
shall be managed by the Board which may
exercise all the powers of the Company.
As far as each director is aware, there is no
relevant audit information of which the
Company’s auditors are unaware. Each
director has taken all the steps that they ought
to have taken as a director in order to make
themselves aware of any relevant audit
information and to establish that the
Company’s auditors are aware of that
information.
Business Review
At each AGM, all directors shall retire from
office and be eligible for re-election, in line with
best corporate practice.
Overview
Appointment and replacement of directors
Unless varied by ordinary resolution, the
number of directors (other than alternate
directors) shall be not less than two nor more
than 15 in number.
Subject to the provisions of the Companies Act
and Articles, at a General Meeting, the Board
may request authority to allot shares and the
power to disapply the statutory pre-emption
rights and the authority to buy the Company's
own ordinary shares in the market. Currently
the Board requests such consent at each AGM.
The details of requested authorities and
powers in connection with the AGM to be held
on 16 January 2013 are set out in the Notice of
Annual General Meeting.
Significant agreements: change of control
All of the Company’s current share plans
contain provisions relating to a change of
control. Outstanding awards and options would
normally vest and become exercisable on a
change of control, subject to the satisfaction of
any performance conditions at that time.
Amendment to Articles of Association
Any amendments to the Articles may be made
in accordance with the provisions of the
Companies Act by way of special resolution.
Independent auditors
A resolution to re-appoint
PricewaterhouseCoopers LLP as independent
auditors to the Company will be proposed at
the AGM.
42
Directors’ Report Remuneration
Board Remuneration Report
ALIGNING REMUNERATION
WITH THE INTERESTS OF
OUR SHAREHOLDERS
Alan Wood
Chairman of the Remuneration Committee
Foreword from the Chairman
of the Remuneration
Committee
The Group has recently adopted the guiding
philosophy of “strong, growing, resilient” to
help drive the future direction of Fenner; this
philosophy encapsulates our aims for the
Group against which we measure our
performance and success. Group
performance is a key consideration when
setting remuneration levels, with the aim of
rewarding the executive directors and senior
managers for their achievement firstly but
also recognising their hard work,
commitment, drive, experience, leadership
skills, and industry reputation. In addition, we
seek to appropriately position ourselves in the
market to attract, motivate and retain the best
available talent to ensure that we continue to
meet our aim of being a “strong, growing,
resilient” Company in what is a global
complex interwoven Group. Retention of
strong achievers is an important focus for
Fenner; our policies are designed to create
loyalty, team spirit and high drive and
motivation. Our low staff turnover is one sign
of this being successful. Taking all of these
other objectives into account, we work to
ensure we align our remuneration policy with
the interests of our shareholders and
generate sustainable returns for them.
The Group results for the year were strong
and well ahead of budget. Details of Group
performance are set out elsewhere in this
Annual Report, but it is against this
background and context that the
Remuneration Report should be read as it
underlies the remuneration packages and
level of payouts under the incentive plans.
While the Committee believes that in order to
attract, retain and motivate our talented and
43
dedicated management team, remuneration
must be aligned to performance during years
of strong Company returns, it must also
reflect the hard work and effort required
during periods of downturn, when it is equally
critical to maintain a strong and stable
management team in order to protect the
long-term interests of the Group and
shareholders. Accordingly, an appropriate
balance needs to be struck between longterm and shorter-term performance based
remuneration and this is achieved by the
annual bonus plans and the longer-term
incentives in the form of the Performance
Share Plan (“PSP”). Additionally, the
Committee takes account of the economic
environment, for example inflation, when
determining annual bonus criteria.
No changes were made to the incentive plan
quantum or the performance measures used
for the executive directors during the year.
The salaries of the executive directors and
senior management were increased by 3.7%
in the year under review. No changes were
made to the fees of the Chairman and nonexecutive directors.
The Chairman of the Board and the Senior
Independent Director provided the Committee
with feedback from major shareholders on
their views on remuneration; this feedback has
been weighed by the Committee when setting
remuneration for the executive directors.
Vanda Murray joined the Board and became
the Senior Independent Director and also
became a member of the Remuneration
Committee; David Buttfield stepped down as a
Committee member at the conclusion of the
AGM in January 2012.
The Committee appointed Deloitte LLP during
the year to advise on executive remuneration
policy and practices. In addition, they provided
advice on non-executive remuneration
matters and reports on both these areas were
presented to the Committee. AON Hewitt
provided advice to the Committee with regard
to the PSP.
Details of who served on the Committee
during the year are set out on page 33,
together with confirmation of who attended by
invitation or provided assistance or advice to
the Committee.
Remuneration policy and
philosophy
As stated above, the Company’s policy on
remuneration is to attract, retain and motivate
executives with the qualities, experience and
skills necessary to operate and develop the
Company’s businesses and promote the longterm growth and stability of the Group,
recognising its global nature. It is also
designed to align the interests of the
executives with those of the shareholders by
rewarding them for enhancing shareholder
value and for performing at the highest level.
Benefit packages awarded to executives
comprise a mix of performance related and
non-performance related remuneration
designed to incentivise them, but not to detract
from the goals of good corporate governance.
When considering remuneration packages for
the executive directors, the Remuneration
Committee is aware of and takes into
consideration the pay and conditions of
employees across the Group, particularly when
considering any increases in base salary.
Executive directors participate in an annual
performance related bonus plan linked to
growth in earnings per share ("EPS") and a
PSP (details of which are given on pages 45 to
46). Performance under the PSP is based on
Total Shareholder Return (“TSR”) and EPS. It
is felt that these two incentive programmes
give an appropriate level of potential reward
Chairman and non-executive directors
The Chairman and non-executive directors
are generally appointed for fixed three year
terms, with provision for additional fixed-term
appointments as deemed appropriate and in
the best interests of the Company.
The remuneration of the non-executive
directors is determined by the Board as a
whole (with individuals absenting themselves
from discussions relating directly to their own
remuneration).
Remuneration components for executive directors
The following chart shows the elements and proportions of the remuneration package for the executive directors showing target and maximum
awards and the split between fixed, short-term and long-term incentives but excluding pension and benefits in kind.
0
10
20
30
40
Percentage
50
60
70
80
90
100
Chief Executive Officer - Maximum remuneration
Upon his promotion to the role in March 2011,
the Chief Executive Officer’s salary was set
Remuneration
Basic annual salary and benefits
The Committee reviews the basic salary of the
executive directors on an annual basis, taking
into account the performance of the Group
and the performance, experience and
effectiveness of the individual and the salary
trends in comparable companies. In addition,
a car allowance, healthcare insurance and
other benefits are available in line with
normal corporate practice.
The Chief Executive Officer’s salary comprises
elements denominated in both sterling and
US dollars. He received a salary increase of
4.7% for each of these elements from
1 September 2012. This is considered to be a
modest increase in comparison to the average
increase of 3.7% across the Group and
reflects the excellent progress he has made
as Chief Executive Officer and his increasing
knowledge and experience in the role. The
Group Finance Director received a salary
increase of 3.7% from 1 September 2012. The
Committee believe that the increase is
commensurate with the strong performance
of the Group in the last 12 months and
reflects his continuing strong performance
and experienced judgement in the Group
Finance Director role. Base salaries following
the pay review on 1 September 2012 are
£403,506 for Nicholas Hobson, including the
US dollar element converted to sterling, and
£253,250 for Richard Perry.
Governance
The non-executive directors do not normally
participate in any of the Group’s bonus or share
incentive schemes, nor do they accrue any
pension entitlement. Mark Abrahams does
retain an interest in provisional awards in the
PSP which were granted during his tenure as
Chief Executive Officer. Any final award of
shares under the extant Plan Cycle in the PSP
are allotted to Mark on a pro-rata basis to
reflect him ceasing to hold an executive position
in the Company from 28 February 2011. This
follows the Good Leaver provisions in the PSP
Rules as approved by shareholders. Once the
fourth PSP Plan Cycle expires towards the end
of 2012, Mark will not participate in any further
incentive schemes in the Company.
lower than that of the previous incumbent
(£390,000) and below the competitive level for
the general market. The previous incumbent
had also been in receipt of generous legacy
pension benefits and allowances which are no
longer offered to new appointments and
resulted in the overall remuneration for the
current Chief Executive Officer being
substantially lower than his predecessor. The
decision to set the current Chief Executive
Officer’s remuneration lower than his
predecessor was made with a view to
gradually increasing his salary to an
appropriate level in line with the
responsibilities and scope of the role once he
had established himself in the position. His
bonus potential, at 100% of salary, is higher
than his predecessor who had a maximum
bonus potential set at 70% of salary. We will
keep the Chief Executive Officer’s salary
under review over the next two years.
Business Review
The primary performance condition used in
the PSP is relative TSR. TSR performance
accounts for 67% of the potential award. A
peer group of companies from the FTSE All
Share Industrial Engineering Sector and the
General Industrials and Electronic & Electrical
Equipment Sectors (“PSP Peer Group”) have
been carefully selected to measure the
Company’s TSR performance against. The
Committee considers that TSR, which
comprises, inter alia, dividend yield and share
price movement in comparison with the PSP
Peer Group, remains a good measure of longterm performance as it aligns the interests of
executives with shareholders and reflects
market conditions in the Group’s industrial
sector. In addition to TSR, there is a
performance element relating to underlying
EPS growth in the Company. EPS performance
accounts for 33% of the potential award. This
EPS element is aligned to the Company’s
strategy of developing its global position and
underlying earnings and, being measured over
a three year period, it encourages focus on
longer-term profitable growth. Structural
changes to the Group are taken into account
by the Committee to ensure that the out-turn
of an annual bonus plan or PSP Plan Cycle is
not artificially impacted by material corporate
events such as major acquisitions, disposals
or significant change to the issued share
capital of the Company.
Overview
whilst aligning the performance conditions to
the interests of shareholders. The
performance targets are discussed in detail
by the Committee each year and are set with
the aim of encouraging and motivating
appropriate behaviour which is aligned with
the careful running and management of the
Group. Part of the assessment includes the
degree of challenge provided by the targets in
the current economic environment. The EPS
criteria for the annual bonus plan for the year
under review was a 16% increase in
underlying EPS compared to prior year.
Target remuneration
Target remuneration
Fixed remuneration - base salary
Short-term incentive - annual bonus
Long-term incentive - PSP
Group Finance Director - Maximum remuneration
44
Board Remuneration Report continued
Summary of core remuneration elements for executive directors for 2012
Element
Opportunity
Objective and
operation
Current performance measure
Changes for 2012/13
Base pay
Base salaries for 2012:
Chief Executive Officer: £382, 824
Group Finance Director: £244,250
Reflects the role,
skills, experience
and contribution of
the individual.
Reviewed annually
with external
advice being
sought from time
to time
Benchmarked externally from time to time
Increases from 1 September
2012 were 4.7% and 3.7% of
salary, respectively.
Positioned to be
competitive with
the market
Not applicable
The Group Finance Director
participated in the defined
benefit section of the Fenner
Pension Scheme until April
2012 and now only receives
a pension allowance.
Focused on
delivery of growth
in underlying EPS
to drive the longterm success of
the Company
100% EPS growth.
No change to quantum or
performance targets.
Align long-term
objectives with the
interests of
shareholders
67% based on relative TSR against the PSP Peer
Group and 33% based on growth in underlying EPS.
Retirement
benefits
The Chief Executive Officer is entitled to a
pension allowance of 26% of base salary;
part is paid into the defined contribution
section of the Fenner Pension Scheme
and part is delivered in cash.
Increases reflect strong
individual performances
during the year (see
discussion on page 44 for
further details).
The Group Finance Director participated in
the defined benefit section of the Fenner
Pension Scheme until April 2012 and now
only receives a pension allowance.
Annual bonus
scheme
PSP
Maximum award of 100% for the Chief
Executive Officer and 70% for the Group
Finance Director.
Ongoing maximum award of 70% of base
salary (actual maximum under the plan is
150% of base salary).
For 2012/13, the bonus will pay out for underlying
EPS growth, capped at 16%, with payments linear
between 0% to 16%.
No bonus will pay out unless there is growth in
underlying EPS compared to the previous year.
No change to maximum
opportunity
Performance is measured over 3 years.
No awards will vest unless the Committee are
satisfied that TSR and EPS performance reflect
the Company’s underlying financial performance.
Vested shares are retained for a further 3 years.
45
External appointments
The Company believes that external nonexecutive appointments can broaden the
experience and knowledge of the executive
directors which can be of benefit to the
Company. Therefore, executive directors may,
subject to approval by the Board and providing
there is no conflict of interest, be allowed to
accept appointments as a non-executive
director of another company (with only one
such appointment allowed in a FTSE 100
company). The Chief Executive Officer,
Nicholas Hobson, does not currently hold any
external non-executive positions. The Group
Finance Director, Richard Perry, is a nonexecutive director of Scapa Group plc and
retained fees of £42,000 in relation to Scapa
Group plc’s year ended 31 March 2012.
growth in underlying EPS, with a bonus cap at
16% growth and payments linear between 0%
growth and 16% growth. No bonus is payable
unless there is growth in underlying EPS
compared to the prior year. Nicholas Hobson’s
bonus cap is at 100% of basic annual salary
whilst Richard Perry’s cap is at 70% of basic
annual salary. Both bonus plans exclude
benefits in kind and pension contributions. The
Committee does take account of material
corporate events and their influence on EPS
when making final bonus awards so that they
are not artificially impacted by major
acquisitions, disposals or significant change to
the issued share capital of the Company. In the
year under review, maximum bonuses will be
paid based on the EPS performance exceeding
16% growth over last year.
Annual performance related bonus
Performance related cash bonuses are
reviewed annually. Underlying EPS targets
aligned to shareholder expectations are set
which must be achieved before the target
bonus is payable. Underlying EPS is viewed as
having an inherent link to inflation. The 2012/13
performance bonus is based on year-on-year
Performance Share Plan
The PSP is the sole long-term incentive vehicle
for executives and is designed to encourage its
participants to deliver sustained long-term
performance and above market returns to
shareholders. The Remuneration Committee
insist that any shares allotted under the PSP at
the end of a Plan Cycle are then held for a
further three years other than in exceptional
circumstances and to settle the tax liability on
such share allotment. This added stricture
further aligns the long-term interests of the
shareholders with the long-term incentive
programme that the executive directors and
Executive Committee participate in.
Rewards under the PSP are linked to the
Company's performance against demanding
targets over three year periods (“Performance
Periods”). A conditional award of ordinary
shares is based on a percentage of the
participant's annual basic salary up to a
permitted normal maximum of 150%. The
grant policy currently and historically under the
PSP is to make awards of 70% of salary (which
is below median of comparable benchmarks).
The policy of granting awards of 70% of salary
will be applied to the 2012/13 award.
The performance measurements used since
the fifth Plan Cycle of the PSP in 2010 are the
Company's TSR (67% of the performance
measure) and underlying EPS (33% of the
performance measure). TSR is compared with
the TSR of the PSP Peer Group.
Below median
Nil
Median
25%
Between median
and upper decile
Between 25% and
100% on straightline basis
Upper decile
100%
Underlying EPS
growth over 3
years
% of share award
vesting
25% or below
0%
Between 25% and
40%
Between 0% and
100% on straightline basis
40%
The PSP Peer Group
The PSP Peer Group is described on page 44.
The Remuneration Committee selected the
PSP Peer Group as it believed it to be the most
appropriate group against which the TSR of
the Company should be measured because it
is a group of businesses similar in nature to
the Company and which represents alternative
investment options for our shareholders.
The performance chart below illustrates the
Company’s TSR over the past five years
compared to the TSR of the FTSE All Share
Industrial Engineering Index and the FTSE 250
Index. The Committee obtains appropriate
third party confirmation of the extent to which
the PSP targets are met.
Total shareholder return
The following graph shows the value, at 31 August 2012, of £100 invested in Fenner PLC on 31
August 2007 compared with the value of £100 invested in the FTSE 250 Index and FTSE All Share
Industrial Engineering Index on the same date. The other points plotted are the values at
intervening financial year ends.
250
Fenner
PLC
200
100%
FTSE All Share
Industrial
FTSE 250
Engineering
Index
Index
31 August 2007
31 August 2008
31 August 2009
31 August 2010
31 August 2011
31 August 2012
150
100
50
Aug‘07
Aug‘08
Fenner PLC
Aug‘09
Aug‘10
FTSE 250 Index
Aug‘11
100
99
57
100
183
177
100
86
83
95
105
117
100
101
93
144
196
209
Aug‘12
FTSE All Share Industrial Engineering Index
Source: Thomson Reuters
Remuneration
% of share award
vesting
Governance
Relative TSR over
3 years
Dilution limits
Fenner share plans comply with the current ABI
Guidelines on headroom which provide that
overall dilution under all plans should not exceed
10% over a 10 year period in relation to the
Company’s issued share capital, with a further
limitation of 5% in any 10 year period on executive
plans. Assuming none of the outstanding awards
lapse and will be exercised and having included
all exercised awards, as at 31 August 2012, the
Company has utilised 1.99% of the 10% in 10
years limit and 1.99% of the 5% in 10 years limit.
Business Review
Performance criteria for PSP awards
granted from November 2010
In addition, no award will vest unless the
Committee is satisfied that the Company’s
EPS and TSR performance reflects its
underlying financial performance. Prior to
2010, the only performance measure was TSR.
It is anticipated that a 100% vesting of shares
will be awarded under the fourth Plan Cycle
which is due to vest in November 2012 as the
Company exceeded the EPS target and
achieved an upper decile performance on TSR.
Overview
The EPS performance target is set against
underlying EPS growth in the Company
measured over the three years from the end
of the financial year preceding the year in
which the award is made. Prior to each grant
being made, the EPS performance targets will
be reviewed to ensure that they remain
challenging.
Directors’ service contracts
The details of the service contracts in relation
to the executive directors and letters of
appointment in relation to the Chairman and
non-executive directors who served as
directors during the year are as follows:
Effective date of service
contract/letter of appointment
Unexpired term at
31 August 2012
Notice
period
1 March 2011
5 April 2012
-
1 year
1 year
1 March 2011
11 January 2012
12 January 2011
1 April 2010
1 September 2010
18 months
29 months
16 months*
7 months
12 months
1 year
1 year
1 year
1 year
1 year
* David Buttfield has elected to retire at the conclusion of the AGM in January 2013 and therefore will only serve just over four of the 16 months remaining under his
current term of appointment.
Executive directors
Nicholas Hobson
Richard Perry
Mark Abrahams
Vanda Murray
David Buttfield
Alan Wood
John Sheldrick
The service contracts do not contain any
provision for compensation on early
termination other than the notice period and
the provision noted above. The Committee will
seek to mitigate the cost to the Company
whilst dealing fairly with each individual case.
The executive directors have rolling 12 month
contracts. In addition, the Company has
agreed to the payment of a prescribed sum
equivalent to 12 month’s salary and
contractual benefits if there is a change of
control or termination of their contracts by
the Company other than for cause.
46
The following sections of the Board Remuneration Report are audited.
Directors’ detailed emoluments
Total
emoluments
2012
£
Total
emoluments
2011
£
48,202
22,772
382,824
170,975
813,850
437,997
407,169
422,179
120,000
30,769
48,062
43,794
42,500
-
5,523
429
345
301
-
-
125,523
31,198
48,407
44,095
42,500
-
408,965
48,062
42,794
42,500
62,550
10,982
-
143,818
-
912,199
77,572
553,799
1,543,570
1,445,201
292,235
362,620
Annual salary
or fees
£
Executive directors
Nicholas Hobson (1)
Richard Perry
Mark Abrahams (2)
Vanda Murray (3)
David Buttfield
Alan Wood
John Sheldrick
Colin Cooke (4)
David Campbell (5)
382,824***
244,250
Benefits in
kind*
£
Annual pension
allowance or
pension
entitlement 2011
£
99,534**
192,701
48,607
170,195
* Benefits in kind include the provision of a car allowance
and healthcare insurance for the executive directors and
travel expenses for non-executive directors. Mark
Abrahams’ benefits in kind also includes a car allowance.
***Nicholas Hobson includes a US$ denominated element
which is converted to sterling for payment purposes.
(3) Vanda Murray was appointed on 11 January 2012 and
remuneration is reported from that date.
(1) Emoluments for 2011 reported from 1 March 2011 upon
appointment as Chief Executive Officer.
(4) Relates to the period up to 28 February 2011.
** Includes £19,440 of Company contributions made into the
defined contribution section of the Fenner Pension
Scheme.
(2) Emoluments for 2011 include amounts relating to his
period as Chief Executive Officer up to 28 February 2011.
The Board did not waive any emoluments in respect of the
year ended 31 August 2012.
Pensions
Nicholas Hobson is in receipt of a pension
entitlement equivalent to 26% of his annual
salary, part of which is paid into the defined
contribution section of the Fenner Pension
Scheme (an Inland Revenue approved mixed
benefits scheme) in line with the terms of the
Executive section of the defined contribution
scheme. The balance of the pension
entitlement is paid to Nicholas Hobson and he
has full discretion in how he chooses to invest
it. The Company does not retain any
responsibility for the investment performance.
Richard Perry participated in the defined
benefit section of the Fenner Pension Scheme
until April 2012 whereupon he became a
postponed pensioner under the Scheme. The
scheme provides for a maximum pension of
two-thirds of remuneration subject to the
notional Inland Revenue earnings cap that
existed prior to the implementation of the
Finance Act of 2004. In addition, Richard Perry
received a Pension Allowance under the
terms of his Service Agreement. These
payments enable him to enhance his pension
provision up to two-thirds of remuneration,
rather than being aligned to the notional
Inland Revenue earnings cap. Richard Perry
has full discretion in how he chooses to invest
the Pension Allowance payments and the
Company does not retain any responsibility for
the investment performance. From April 2012,
47
Annual pension
allowance or
pension
entitlement 2012
£
Annual
performance
related
bonus
£
Richard Perry receives a payment which is
equivalent to the total cost the Company
previously incurred to meet the contracted
pension arrangement. The payment has been
frozen at a fixed percentage of 88.17% of base
salary. Richard Perry’s pension entitlement
should be viewed as a legacy arrangement,
set when such pension payments were the
norm and were in line with remuneration
practice and packages for senior executives at
the time of his appointment. This pension
allowance is taken into account fully when
determining his total package and basic
salary in particular. Future executives would
have a more prescribed pension arrangement
as befits current remuneration practice.
The Chairman and non-executive directors do
not participate in any Company pension
scheme.
(5) Relates to the period up to 29 November 2010.
Overview
Executive accrual in the defined benefit pension scheme
Details of the pension benefits to which Richard Perry is entitled are as follows:
Increase in
accrued
entitlement
over the year
£
Accrued
entitlement
31 August
2012
£
Transfer
value at
31 August
2011
£
Transfer
value at
31 August
2012
£
Increase in
transfer value
less director’s
contributions
£
70,000
8,400
78,400
1,403,500
1,820,300
410,700
Richard Perry*
Additional information as required by the Listing Rules:
Richard Perry
Additional accrued benefits earned in year
£
Transfer value of additional accrued benefits
earned in year less director’s contributions
£
2,600
49,500
Business Review
Accrued
entitlement
31 August
2011
£
* Richard Perry ceased to accrue any further pensionable service when he withdrew from the Fenner Pension Scheme on 4 April 2012. He has chosen not to draw his
pension and is now a postponed pensioner.
The transfer value as at 31 August 2012 has
been calculated in line with the Trustees’
transfer value basis which was effective from
1 October 2008. The transfer value of the
accrued entitlement represents the value of
assets that the pension scheme would need to
transfer to another pension provider on
transferring the scheme’s liability in respect of
the director’s pension benefits. It does not
represent a sum payable to the director and,
therefore, cannot be added meaningfully to
annual remuneration.
The transfer value of the increase in accrued
benefits, required by the Listing Rules,
discloses the current value of the increase in
accrued benefits that the director has earned
in the period, whereas the change in his
transfer value, required by the Companies Act
2006, discloses the absolute increase or
decrease in his transfer value and includes the
change in value of the accrued benefits that
results from market volatility affecting the
transfer value at the beginning of the period, as
well as the additional value earned in the year.
Interests in shares
1 September 2011
Number
215,677
567,000
690,485
2,000
48,618
5,528
10,000
165,439
518,000
623,922
48,618
-
All directors’ interests are beneficially held. There have been no other changes in the interests set out above between 31 August 2012 and 7 November 2012.
Policy does allow shares to be sold to settle
tax liabilities arising on them and for
retirement planning purposes. The Policy
aims to encourage executives to build and
maintain a meaningful shareholding in the
Company which can be achieved by the
retention of shares vesting under the longterm incentive arrangements and the
purchase of shares in the market. This helps
ensure that their interests are aligned with
those of shareholders. Both the executive
directors hold shares in excess of the
Executive Management Share Ownership
Policy requirements.
Shareholding guidelines
An Executive Management Share Ownership
Policy was introduced during the year which
sets the expectation that executive directors
hold the equivalent of 100% of salary at the
point of acquisition in Company shares and
that members of the Executive Committee
hold the equivalent of 50% of salary at the
point of acquisition in Company shares. The
Nicholas Hobson
Richard Perry
Mark Abrahams
Vanda Murray
David Buttfield
Alan Wood
John Sheldrick
31 August 2012
Number
Remuneration
The increase in the accrued entitlement is the
difference between the accrued entitlement at
31 August 2012 and the accrued entitlement at
31 August 2011.
The pension benefits are based on the
director’s pensionable salary which is limited
to the scheme’s permitted maximum, £129,600
per annum, at the date Richard Perry withdrew
from pensionable service.
Governance
The accrued pension entitlement is the amount
that the director would be paid annually on
retirement based on service to 31 August 2012.
The Listing Rules require the increase in this
amount to be disclosed excluding inflation. The
benefits do not allow for any retained benefits
which the director may have relating to
previous employment. The pension benefits
exclude any additional pension purchased by
additional voluntary contributions.
48
Share schemes
None of the directors held any share options during the year.
Awards to executive directors under the PSP were as follows:
Value
awarded
End of
Performance
Period & Award
Determination
Date*
94,385
-
109,251
-
41,638
66,226
74,663
£339,786
-
18 November 2011
17 November 2012
16 November 2013
15 November 2014
1,037
702
551
100,300
-
116,097
-
90,077
60,977
47,883
£361,080
-
18 November 2011
17 November 2012
16 November 2013
15 November 2014
860
138,673
-
160,515
-
74,724
£499,222 18 November 2011
- 17 November 2012
Conditional
award in
the year
Number
Dividend roll up
applied to
conditional award
in the year**
Number
Shares
awarded
Number
Nicholas Hobson
19 November 2008 (1)
16 November 2011
203,636
41,159
65,464
-
73,804
479
762
859
Richard Perry
19 November 2008
18 November 2009
17 November 2010
16 November 2011
216,397
89,040
60,275
-
47,332
Mark Abrahams
299,188
73,864
-
Allocation Date
Total of awards in year
(1) These represent the total conditional and final awards
made to Nicholas Hobson, part of which relate to the
period before he was appointed Chief Executive Officer on 1
March 2011. £56,631 of the final value awarded during the
year relates pro-rata to the period since he became Chief
Executive Officer.
(2) These awards relate to the period up to 28 February 2011
when Mark Abrahams had been Chief Executive Officer. No
awards relate to his period as Chairman since 1 March 2011.
* The Performance Periods for each of the PSP Plan Cycles
run for three years from 1 September in the year the Plan
Cycle was conditionally awarded to 31 August in the year of
the third anniversary of the Plan Cycle.
Movements in share price
during the year
The market price of the Company’s shares at
the end of the financial year was 347.8p and
the range of market prices during the
year was between 280.0p and 483.7p.
A resolution on this, the annual Board report on
directors’ remuneration, will be put to
shareholders at the Company’s AGM, inviting
them to approve this Report. Details of the
Remuneration Committee’s membership and
governance responsibilities are given in
Corporate Governance on pages 33 to 34.
Alan Wood
Chairman of the Remuneration Committee
7 November 2012
49
Shares
lapsed
Number
Conditional
award
31 August
2012
Number
Conditional
award
1 September
2011
Number
333,358
** Dividend roll ups have been applied since 2008 in line with
the PSP Rules. They accrue over the Plan Cycle and are
added to the original conditional award before the final
award and allotment of shares is made.
The performance criteria attached to the conditional award of
shares made on 16 November 2011 relate to the Company’s
TSR which is compared with the TSR of the PSP Peer Group in
the Company and the EPS performance target.
There have been no variations in the terms and conditions of
scheme interests during the year.
The Plan Cycle that ended on 18 November 2011 was
independently evaluated and resulted in an award of 46.35% of
£1,200,088
the conditional award plus the dividend roll up that was
applied to the conditional award over the three year Plan
Cycle. The market value (as defined in the PSP Rules) of an
ordinary share of the Company at the beginning of the Plan
Cycle was 81.8p, at the end of the Plan Cycle was 360.0p and
at 16 November 2011 for the 6th PSP was 361.22p.
The performance chart on page 46 shows the relative TSR of
the Company against the FTSE All Share Industrial
Engineering Index and the FTSE 250 Index; the Company is a
constituent of both indices.
Overview
Nicholas Hobson
FENNER BELIEVES THAT BEING A GOOD EMPLOYER AND A POSITIVE
INFLUENCE IN OUR COMMUNITIES UNDERPINS THE SUSTAINABILITY
OF OUR BUSINESS
All employees are expected to take personal
responsibility for their conduct and Fenner
recognises the need to create a culture and
behavioural environment within the Group to
facilitate the successful implementation of the
Group’s policies.
Health and safety
Why it matters to Fenner
We believe that anyone who works for Fenner
should expect to return home in the same fit
and healthy state in which they came to work.
It is expected that everyone who works for
Fenner, regardless of location, is responsible
for the safety of both themselves and their
colleagues. This individual and collective
responsibility helps us to ensure that the
environment in which we all work is safe for
Corporate Responsibility and Governance
Board
Audit
Committee
External
Reporting
Code of Conduct
Health and safety;
Our people;
Remuneration
How we manage CR
Fenner strives to understand and manage
significant risks to the environment and
communities in which it operates as well as
the positive impact we can make through our
activities. The impact of Fenner’s activities on
our employees, the environment and the
broader communities and stakeholders with
whom we engage is addressed within five key
areas:
applied at a divisional and operating unit level
is delegated through the Chief Executive
Officer to divisional directors and on to each
operating unit’s senior management. All
policies and associated management systems
are reviewed at least annually and at any time
when significant changes in the business,
legislation or industry standard demand. Each
operating unit is responsible for ensuring
that, as a minimum, it meets local statutory
requirements and is encouraged to reflect
identified best practice within the Group.
Governance
Why CR is important to Fenner
Fenner understands that corporate
responsibility is an important driver of longterm, sustainable business success.
Additionally, we believe that we have social
and environmental responsibilities to the
communities in which we work and that these
responsibilities must be embedded within our
business decision making process. We
recognise that the correct management of
these responsibilities will help to contribute to
our overall business success, bringing with it
an enhancement to reputation, profitability
and shareholder return.
Business Review
ADDRESSING OUR
RESPONSIBILITIES
Policies
Board
Environment;
Group Compliance
Officer/ Group Company
Secretary
Community; and
Business behaviours.
Procedures
The Board sets the strategy and has overall
responsibility for the development and
monitoring of the Group’s policies related to
Corporate Responsibility. The task of ensuring
that these policies are communicated and
Communication
Divisional
Directors
Local Compliance
Officers
Confidential
Whistleblowing
Procedure
Employees
The risks associated with these five areas are
managed within the Group’s risk management
framework and are continuously monitored
and assessed, with necessary controls put in
place in order to reduce any potential impact.
50
Corporate Responsibility continued
ourselves, our colleagues and customers and
all those with whom we work.
What policies and practices are in place?
Fenner looks for and promotes health and
safety (“H&S”) as a key element in the culture
of each of its operations. The Health & Safety
Management System Framework (“The
Framework”) provides Group-wide structure
and guidance to ensure continuous
improvement within the unique culture and
autonomy of our operating units.
Furthermore, The Framework provides
individuals, operating units and new
acquisitions with a clear understanding of
what is required of them, whilst allowing local
management the freedom to develop their
systems to satisfy local legislation, practice
and social mores.
The Framework was launched in January
2009 and, together with Group policies, forms
the foundation of the Group H&S
management system. The Framework
encompasses 13 Elements to ensure a robust,
all-encompassing and continually improving
H&S culture within the Group. The Elements
are subdivided into 89 Expectations covering
all aspects of business from Accountability
and Leadership to Community and
Stakeholder Awareness. The Framework
provides clear guidance to all our operating
units to enable them to undertake a riskbased assessment of their local H&S
management systems and develop
appropriate improvement plans. In line with
the culture of delegated accountability in the
Group, the accountability for managing H&S
and developing local H&S management
systems resides with local management; this
ensures the systems are appropriate to the
local culture, organisation and regulatory
environment, whilst additionally seeking to
meet best practice standards. Crucial to the
development and effective implementation of
local improvement plans is an external
assurance programme which measures
Group performance against industry-wide
benchmarks and best practice standards.
The response within the Group to the
structure and clarity provided by The
Framework has been extremely positive. It is
recognised that embedding The Framework
into Group operations will be a long-term
project as it necessitates a degree of cultural
change. The process is built on individual
operating unit improvement plans that are
refreshed annually. Each year, all operating
units review what improvements have been
achieved in the previous year and revise
priorities based on long-term improvement
goals and new input gleaned from sources
including incident investigations, assurance
visits and Group/industry communications.
The continuous improvement approach to
H&S management and the core processes
integral to this are illustrated in the Safety
Management System diagram.
Safety Management System
Ownership, Communication & Promotion
(Balance of accountability)
Local
H&S Performance
Planning & Execution
Operational Strategy
Core Processes
• Training and
• Learning from
past experiences competencies
• Leadership
and direction
• Policy and
procedure
• Measurement
and assurance
• Technical
integrity
• Risk
management
The Framework
Group Policies
Group
51
Operational
Review
Regulatory Compliance
Challenge
& Continuous
Improvement
The Group Health and Safety Policy can
be viewed at www.fenner.com
What are we doing?
The Framework requires each operating unit to
assess its current level of compliance with the
Expectations on an annual basis, taking into
account the current operational risk profile and
applicable regulatory requirements. The unit
then produces an improvement plan which
incorporates and builds on their existing H&S
programmes. The Framework is a core
component of the integration plan for all
acquisitions. Progress against these plans is
monitored and subject to independent
assessment through an assurance
programme. As Fenner heads to the third
update and review, the benefits of a structured
approach are evident in both the established
Fenner operating units and our recent
acquisitions.
Since the inception of The Framework in 2009,
it has been recognised that an essential part of
the management of H&S in the Group is the
effectiveness of its associated assurance
programme. Soon after the roll-out of The
Framework, such an assurance programme
was developed. This comprised visits by
independent, third party H&S experts who
review documentation, engage with staff at all
levels in the operating unit and assess the local
H&S culture and behaviours. We recognise that
the assurance programme delivers multiple
benefits in the Group’s diversified culture: it
provides independent verification to the
Executive Committee and the Board as to the
state of local safety management systems and
safety culture across the Group; it provides
each operating unit with recommendations for
improvement based upon a broad cross-Group
perspective; and it acts as a conduit for sharing
best practice across the Group.
We strongly believe that H&S is at the heart of
the way we do business. Every manager and
supervisor is accountable for delivering high
levels of H&S performance in their area of
influence. These leaders are supported by a
network of local H&S managers within the
operations who are able to advise, support and
drive improvements in their safety
management systems. All operations have an
H&S committee which meets regularly to
discuss H&S topics and concerns, make
recommendations and implement and monitor
any improvements or initiatives. H&S key
issues and measurements are also routinely
monitored and discussed at management
meetings, with investigations into serious
incidents and near misses reported to the
Group for dissemination across all global
operations.
The recruitment and retention of a skilled
workforce is essential to the Group. Each
operating unit employs recruitment practices
which identify the best available candidate for
each position. All employees are actively
encouraged to apply for roles, including
cross-divisional opportunities where
applicable.
Fenner aims to provide a positive work
environment for all employees, wherever they
work. The Group recognises and values
diversity within the workforce and believes in
treating all employees with dignity and
respect. Fenner is committed to providing
equal opportunities in recruitment and
employment and does not discriminate
against any person based on gender, race,
age, caste, origin, religion, disability, sexual
orientation or any other status protected by
Fenner believes that open and timely
communication helps to increase employee
awareness and understanding of our culture
and vision at both a local and Group level. The
“Fenner Focus” magazine is produced and
distributed to all employees on a quarterly
basis and is an effective route to
communicate matters of Group and
operational significance. The magazine also
provides an opportunity to highlight and
recognise operating units and individuals for
their work in the community, H&S initiatives
and long service awards. At a local level,
operating units communicate regularly with
their employees using a variety of methods
including staff meetings, management
walkabouts, newsletters, consultative
councils, suggestion schemes, electronic
messaging and social events. All operating
units encourage two-way communications
and provide channels for feedback and
comment on the Group’s activities.
Highlights from the year
Due to the global nature of the Group’s
business and customer base, we have a
geographically and culturally diverse
workforce. On average during the year, the
Group employed 4,970 people (2011: 4,548), of
which 25% were located in Europe, 47% in the
Americas, 4% in Africa and 24% in Asia Pacific.
Since 2008, we have awarded the annual
Fenner Group Health and Safety Improvement
Award. The award recognises the operating
unit which has made the most progress
towards achieving our goals of making safety
the top priority in all work environments and
ensuring that all those who work for Fenner
can expect to return home in the same fit and
healthy state in which they came to work.
There were a number of operating units that
were in contention for this year’s award, with
the ECS solid woven belting operations in
Madurai, India and Johannesburg, South
Africa, the Fenner Precision operation in
Fenner strongly believes that its employees
are critical to the continued success of the
Group. The Group’s ability to consistently
deliver reliable and superior solutions to
customers is founded upon a stable,
technically skilled, innovative and committed
workforce.
The Fenner Dunlop Americas operation in
Toledo, USA received three awards from
the Ohio Bureau of Workers'
Compensation. The awards were for the
lowest incident rate in their industry
sector; operating for an entire year
without a lost time injury; and for
decreasing their incident rate by over 25%
from the previous year.
Our people
The risks associated with inadequate
succession planning are recognised at Group
level. These risks are continuously monitored
and the Group aims to identify high potential
employees to receive training and
development in preparation for potential
senior management.
Remuneration
The FAST operation in Hampton, UK
secured the prestigious RoSPA Gold
Award for the sixth successive year,
highlighting the site’s continued
excellence in the management and
control of H&S. Achieving this also
resulted in them attaining a second
RoSPA Gold medal, awarded to those
organisations which have achieved five to
nine consecutive Gold Awards; and
What are we doing?
Fenner recognises the importance of
providing training and development
opportunities to enable employees to increase
their contribution to the Group and realise
their full potential. Upon joining Fenner,
employees receive training on a variety of
subjects, including H&S and Group policies
and procedures. In keeping with the delegated
accountability approach taken by the Group,
additional training requirements are
continually assessed at a local level and
further appropriate training is provided to
meet the development needs of both the
operating unit and the employee. Employees
take part in formal annual appraisals to
discuss performance, achievements and
potential areas for development and
progression. The appraisal process ensures
continuing communication between
management and employees.
Governance
Multiseals, the FAST operation in
Singapore was recognised with
Singapore’s highest H&S award: the
bizSafe Star;
The 2012 Fenner Group Health and Safety
Improvement Award has been awarded to the
Solesis Medical Technologies operation,
Xeridiem, in Tucson, USA who achieved a
reduction in lost time incidents from three in
2010/11 to nil in 2011/12. Local management
attributed this improvement to a broad
approach which started with fully engaging
with The Framework and its associated
Expectations to provide structure and
guidance for their planned improvements.
This has resulted in a fundamental change in
employee attitudes and culture, with everyone
embracing their personal accountability for
their own and others’ safety. This behavioural
change has been promoted by senior
management and supported through the
application of resources, organisational
changes and regular recognition events.
law. Fenner does not tolerate any form of
harassment, discrimination or bullying and is
committed to progression based on merit.
Business Review
A number of the Group’s operating units have
received external recognition and awards
during the year for their performance in H&S.
These included:
Buffalo, USA and the FAST operation in
Houston, USA all receiving commendations
for the improvements that they have made
over the last year. All of these operating units
have managed significant reductions in lost
time injuries over the past year. In addition,
the conveyor belt service network in Chile
received a commendation for achieving a
second full year without recording a lost time
incident, a remarkable achievement in an
area of Group operations that is recognised
internally as having the highest H&S risk.
Overview
Accidents and near misses are recorded and
reviewed locally and safe systems of work
updated if necessary. Accidents involving lost
time are reported through divisional
management to the main Board. The process
for sharing details of an incident and the
measures around the Group to prevent similar
accidents happening elsewhere has been
formalised and extended to include near
misses and guidance on wider health issues
with a business impact. H&S regulators are
increasing their level of activity, increasing
penalties and extending their interest across
businesses with common ownership. The
Framework and our Group-wide processes
not only ensure our performance improves,
but also address this increased regulatory
activity.
52
management systems. These systems are in
line with the Group Environmental Policy and
The Framework which outline a set of Group
Environmental Expectations. Currently, 32%
of the Group is either accredited or working
towards accreditation under the
internationally recognised ISO14001 scheme.
Case Study
Over the year, Fenner Dunlop in Australia
have focused on the development of their
supervisors by introducing the Supervisor
Training Empowerment Program (STEP).
The programme provides an opportunity to
further enhance leadership, HSE knowledge
and other business skills. The programme
is supplemented by pre and post-course
activities to ensure the training is
reinforced. To date, five programmes have
been rolled out with 64 employees
progressing through the course.
Fenner is proud of the fact that the current
average period of service across the operating
units of the Group stands at 7.6 years (2011: 8.3
years).
Over the year, Fenner has continued to
promote the welfare of its employees. A large
number of operating units offer free health
screenings and vaccinations to their
employees. Several operating units also
encourage their employees to lead healthier
lifestyles through the use of wellness
programmes; these programmes range from
the provision of educational healthcare
information, to encouraging gym membership
and offering on-site exercise sessions to
employees. During the year, Fenner Dunlop
Europe’s UK site supplemented its wellness
programme by offering its employees a 50%
subsidy for membership to a local sports
centre. Xeridiem in Tucson, USA staged a
health and wellness fair for its employees
and, as part of its programme, rewards were
offered to employees who participated in
weight loss and smoking cessation courses.
Employees by location
24%
4%
47%
25%
Americas
Africa
53
Asia Pacific
Europe
All acquisitions are subject to appropriate
environmental due diligence, which is
specifically extended to include environmental
management systems and operational
compliance.
Environment
Concern for the Group’s impact on the
environment is a fundamental part of our
corporate business strategy as we endeavour
to contribute towards a sustainable future.
The Group is committed to identifying and
assessing the risks of pollution and other forms
of environmental impact arising out of its
activities and actively seeks to reduce its impact
on the environment to the lowest practical level
by ensuring that, within the constraints of the
local infrastructure, all operations and activities
of the Group exemplify current best practice in
respect of the environment.
At Board level, the Chief Executive Officer has
specific responsibility for the development of
policy and management systems. Responsibility
for each operating unit is delegated to the
senior managing director and, at a local level, to
a senior manager at each site supported by inhouse or third party professionals. Each
senior managing director reports to the Board
on a regular basis and advises the Board
immediately of any environmental risks or other
incidents likely to be significant to the operation.
No new environmental risks or incidents were
reported to the Board in the last year.
We believe that, due to the large variation in
environmental regulation and approach
across different countries, our best response
to deliver environmental management is to
ensure that each operational location is fully
aware of and supported with respect to its
local, national and international regulatory
obligations. Taking this locally focused
approach, operating units have established a
number of different local environmental
The general principle adopted by the Group is
one of waste minimisation in its broadest
sense, whether that waste is energy, raw
material or water. Wasteful use of any
resource is counter to the efficient running of
any business and incurs additional cost,
either from suppliers or from disposal of the
waste, therefore the minimisation of
manufacturing waste and the maximisation of
energy efficiency are recognised as beneficial
to the Group from both an environmental and
a commercial viewpoint.
Waste minimisation is driven and managed at
the operating unit level. All major
manufacturing operations monitor their waste
emissions and all operating units comply with
local environment legislation. General waste
management programmes and initiatives are
encouraged and the recycling of materials
takes place where practical, either internally
or through external programmes with
suppliers or other third parties. An example of
this is the “Goal Zero” programme running at
our Fenner Drives facility in Manheim, USA.
The Group Environmental Policy can be
viewed at www.fenner.com
What are we doing?
The Group recognises the increase in public
awareness of the climate change debate and
the need for companies to understand the
scale of their greenhouse gas emissions. It
also recognises that there is no globally
accepted methodology for calculating
emissions, with most countries having a
portfolio of emission factors for various energy
sources based on either the average
composition of primary fuels or averaged
emission factors for secondary energy sources
such as electricity purchased from a national
grid. Whilst these averages are inherently
inaccurate, they are the generally accepted
methodology for estimating the end user’s
greenhouse gas emissions for year-on-year
reporting. To this end, the Group has elected
to report global figures based on emission
factors prescribed within the internationally
accepted greenhouse gas protocol.
The Group uses a variety of energy sources.
The main contributors to greenhouse gas
emissions are purchased electricity and
natural gas which, combined, account for 86%
of the Group’s emissions.
During 2012, we have undertaken a UK pilot
project demonstrating an energy and
emissions reporting system, with the intention
of a global roll-out to all our operations by the
end of the calendar year 2012. This will enable
a more robust and efficient reporting of future
greenhouse gas emissions, consistent with
the recent announcement from the UK
Fenner undertakes regular reviews of its
activities and the workings of the
environmental policy to ensure it is
comprehensive and effective, identifying
objectives and standards that will enable a
demonstrable continuous improvement in
environmental matters.
Greenhouse gas emissions
26%
3%
3%
1%
14%
3%
3%
Electricity
Other
Natural Gas
Petrol
Coal
Diesel
Water
Fuel Oil
LPG
Fenner believes that good relations and longterm partnerships with the communities in
which it works are fundamental to its success.
Fenner always considers the potential social
and environmental impacts that its business
activities may have on those communities and
such considerations are embedded within the
Group’s decision making processes.
The Group’s support for the communities it
operates in is driven at a local, rather than
corporate level. The approach, adopted across
the globe, is to support and enhance employee
efforts in their communities through the
application of the Group’s resources.
The Group’s Code of Business Conduct
prohibits any political donations and therefore
no political donations were made during the
year. Fenner has respect for human rights and
supports the Universal Declaration of Human
Rights.
What are we doing?
Over the year, the majority of operating units
chose to provide help to local causes. The
three main areas of focus for donations and
charitable activities were education,
community and health. During the year, total
charitable donations of £102,000 were made
(2011: £151,000).
1%
60%
Community
Air quality could be adversely affected by
some of our processes and we have
implemented systems to ensure this does not
happen. A number of locations use processes
which involve a range of chemicals,
generically referred to as volatile organic
compounds (“VOCs”). These chemicals are
subject to strict regulation; their storage and
use is strictly controlled. In addition to
The majority of the Group’s operating units
have occupied their sites for many years,
some for over 100 years; the Group therefore
recognises and manages the risk of exposure
to environmental legacy issues.
Remuneration
minimising any emissions to the air of VOCs,
potential substitutes are assessed as soon as
they become commercially available.
Governance
In the UK, Fenner registered in 2010 under
the Carbon Reduction Commitment scheme
(“CRC”), a key component of the Climate
Change Act which was subsequently turned
into a carbon tax. We remain a member of a
Climate Change Agreement (“CCA”), hosted
by the British Plastics Federation, which
commits us to reducing our relative energy
consumption by 10% over six years.
Participation in the CCA requires us to identify
the energy saving potential for each location
and draw up a plan for implementation which
provides cost reductions and an effective
derogation from the complexities of the CRC.
It should be noted that only 13% of our energy
consumption is in the UK.
The preliminary results from the new energy
reporting system indicate that a small
reduction in energy intensity was achieved in
the year under review. All of our operating
units manage their energy efficiency as part
of their normal operating cost control.
Examples include: the purchase of new
equipment with consideration of lifetime
energy costs; studies underway to replace
older boilers with more efficient modern
boilers; and widespread utilisation of energy
efficient lighting.
Business Review
For several years, Fenner Drives in Manheim,
USA has been committed to reducing their
environmental impacts in all aspects of their
manufacturing. They have a no-landfill
approach to waste management and during
2012, generated 560 t of manufacturing
waste, of which over half was recycled and
the residual sent to a local incinerator where
it was used to generate electricity. Fenner
Drives also encourages its employees to
bring recyclable waste from home such as
batteries, fluorescent lamps, printer
cartridges and old mobile phones for
recycling via this system.
Overview
Government regarding mandatory emissions
reporting. The Group does not set global
targets for greenhouse gas emissions but
many operating units set local targets and all
operations comply with local legislative
requirements. Due to the diversity of the
Group’s manufacturing processes, operating
unit size and location, it will be challenging to
produce meaningful, consistent and
predictable intensity measures of greenhouse
gas emissions.
Case Study
54
Whistleblowing Policy;
Case Study
Email & Internet Use Policy; and
Group Control Manual.
During 2012, the James Dawson
operation in Lincoln, UK were
announced as the winner of the
inaugural British Plastics
Federation Energy Award. The
national award was in recognition
of their outstanding improvement
in energy efficiency, ranging from
the consolidation of operations at
two locations into one to simple
activities like ensuring computer
monitors are turned off when not
in use.
Employees and operating units have given
their time and helped raise funds for a variety
of charities and projects over the past year.
Some examples include:
Fenner Drives in Manheim, USA made
contributions to the local community to
assist with flood clean up and recovery;
Fenner Dunlop Europe in Hull, UK
continued to support Hull Compact, a
charitable organisation that helps
children develop their academic potential
by providing a university bursary to a Hullbased student on a financial needs basis.
It also offers work experience placements
for pupils at local schools;
James Dawson in Lincoln, UK provided
money towards kits for a local football
team that is run by a couple of its
employees;
Employees of Xeridiem in Tucson, USA
hosted a donation drive for Casa de los
Ninos which is a local non-profit
organisation designed to help prevent
child abuse and care for children who
have already been abused or neglected.
Employees decided to provide healthcare
items due to the abundance of toy
donations that the organisation receives;
Prodesco in Perkasie, USA permitted
employees to take eight hours off work to
volunteer for an organisation of their
choice; and
The FAST operation in Hampton, UK has
recently supported a local youth club with
equipment and funding.
In support of the Code of Business Conduct, a
whistleblowing helpline is available to all
employees who wish to raise any concerns
they may have regarding potentially unethical
workplace behaviour. Calls to the helpline are
free and the helpline operates 24 hours a day,
7 days a week.
Business behaviours
Fenner believes fundamentally in the principle
that a well run organisation is one whose
officers and employees operate with high
standards of integrity, behave in an ethical
manner and demonstrate responsible
corporate behaviour. The Group recognises
that both its corporate conduct and
relationship building are key elements in
ensuring the success of its business strategy.
We believe that a high standard of business
conduct can help encourage the formation of
successful partnerships with third parties
throughout the Group’s supply chain, thereby
creating additional business value.
The Board has ultimate responsibility for the
development and monitoring of the Group’s
policies relating to corporate behaviour and
for ensuring that those policies are
understood and communicated to employees.
Responsibility for ethical and behavioural
standards in each division is delegated via the
divisional managing director to the senior
manager at each operating unit.
The Group’s culture is one of openness,
integrity and accountability. These principles
are enshrined within the Code of Business
Conduct. The Code sets out the behavioural
standards expected from all employees:
fairness, honesty and integrity. The Code is an
overarching policy which is supported by
additional policies and procedures at both a
Group and operational level, including:
Anti-trust/Competition Policy;
Anti-bribery & Corruption Policy;
Corporate Gifts & Hospitality Policy;
55
What are we doing?
The vast majority of operating units have, or
are working towards, ISO 9001 or equivalent
status and each undertakes rigorous
customer satisfaction assessments, including
senior face to face meetings and customer
surveys. Performance and the timing and
handling of any complaints are routinely
discussed at management meetings and are
used as a key measurement in determining
the success of the operating unit.
Fenner expects that all business partners will
adhere to the high levels of business conduct
that we demand of ourself. It is a standard
requirement of our terms and conditions of
business that both suppliers and customers
comply with all laws relating to anticorruption as well as our related policies. In
addition, we expect strategic partners and
service customers to have H&S management
systems that are aligned with those of the
Group.
Training has been provided to appropriate
employees at an operational level for both
anti-bribery and competition through
seminars, meetings and poster campaigns.
During the year, Fenner has trialled a number
of third party e-learning training programmes
and has now selected a preferred provider to
assist us in implementing a Group-wide
mandatory training programme. The
programme will include modules on the Code
of Business Conduct, bribery and corruption,
with a focus on the UK Bribery Act and anticompetitive behaviour. Fenner has identified
those employees who have a higher risk of
exposure to bribery or other corrupt
practices; all such employees will be required
to undergo appropriate training. An online
certification process will allow employees to
confirm that they have completed the required
training.
The whistleblowing helpline received seven
calls over the year from employees who
wished to raise concerns regarding unethical
workplace behaviour. All calls were
thoroughly investigated and addressed. Of the
seven calls, two were deemed to be
Overview
Fenner’s Corporate Responsibility approach
Health and
safety
• H&S management
• H&S assurance programme
• H&S culture
Our people
• Training & Development
• Leadership development
• Employee welfare
• Employee communications
Environment
• Environment management
• Waste management
• Climate change
• Energy efficiency
Community
• Community engagement
• Community related donations
• Employee community involvement
Business Review
Operational impact areas
Governance
Business behaviours
• Business partner relationship management
• Data & performance managment
• Audit & assurance
• Reporting and communication
Governance
• Policies and procedures
– Code of Business Conduct
– Whistleblowing procedure
• Management systems
• Employee training
Remuneration
appropriate whistleblowing incidents whereas
the others related to work place grievances
and, as such, were dealt with using existing
procedures at a local level. All whistleblowing
incidents are reported to the Audit
Committee.
During 2012, the Group’s Gifts & Hospitality
Policy was updated and communicated to all
operations to ensure that employees had
clarity on the provision and acceptance of gifts
and hospitality. In addition, an online gifts and
hospitality register was implemented, which is
available for use by all operating units.
Nicholas Hobson
56
Independent Auditors’ Report to the members of Fenner PLC
We have audited the Group financial statements of Fenner PLC for the year ended 31 August 2012 which comprise the Consolidated income
statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the
Consolidated statement of changes in equity and the related notes. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of directors’ responsibilities set out on pages 36 to 37, the directors are responsible for the preparation
of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on
the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements.
If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the Group financial statements:
give a true and fair view of the state of the Group’s affairs as at 31 August 2012 and of its profit and cash flows for the year then ended;
have been properly prepared in accordance with IFRS as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion:
the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with
the Group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
the directors’ statement, set out on page 26, in relation to going concern; and
the part of Corporate Governance relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code
specified for our review; and
certain elements of the report to shareholders by the Board on directors’ remuneration.
Other matter
We have reported separately on the parent company financial statements of Fenner PLC for the year ended 31 August 2012 and on the information
in the Board Remuneration Report that is described as having been audited.
Richard Bunter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Hull
7 November 2012
57
Consolidated income statement
for the year ended 31 August 2012
Notes
4
Gross profit
Distribution costs
Administrative expenses
830.6
(557.9)
718.3
(493.5)
272.7
(64.7)
(100.4)
224.8
(58.5)
(83.8)
118.8
(11.2)
91.4
(8.9)
5
7
8
107.6
0.7
(19.7)
82.5
1.5
(14.4)
Profit before taxation
Taxation
9
88.6
(26.2)
69.6
(20.2)
Profit for the year
62.4
49.4
Attributable to:
Owners of the parent
Non-controlling interests
58.6
3.8
47.2
2.2
62.4
49.4
30.3p
30.2p
24.6p
24.4p
Earnings per share
Basic
Diluted
11
11
Governance
Operating profit
Finance income
Finance costs
Business Review
Operating profit before amortisation of intangible assets acquired
2011
£m
Overview
Revenue
Cost of sales
2012
£m
Remuneration
58
Consolidated statement of comprehensive income
2012
£m
2011
£m
62.4
49.4
(3.2)
(0.2)
3.2
(21.1)
3.9
(1.0)
(17.4)
5.2
Comprehensive income for the year
45.0
54.6
Attributable to:
Owners of the parent
41.4
3.6
51.5
45.0
54.6
Notes
Profit for the year
Other comprehensive (expense)/income:
Currency translation differences
Cash flow hedges
Net investment hedges
Actuarial (losses)/gains on defined benefit post-retirement schemes
Tax on other comprehensive income
Total other comprehensive (expense)/income for the year
59
23
23
25
9
1.5
(3.0)
9.8
(2.1)
3.1
Consolidated balance sheet
at 31 August 2012
207.6
202.1
0.2
23.1
4.7
462.2
437.7
105.6
120.6
0.5
0.5
108.7
103.4
118.0
0.3
0.1
104.3
335.9
326.1
798.1
763.8
(11.0)
(147.4)
(13.6)
(9.4)
(16.8)
(149.5)
(12.2)
(0.9)
(12.4)
(181.4)
(191.8)
(195.4)
(2.0)
(48.2)
(28.8)
(8.1)
(5.2)
(189.3)
(5.1)
(31.7)
(25.4)
(11.8)
(7.2)
(287.7)
(270.5)
(469.1)
(462.3)
329.0
301.5
16
17
23
18
Total assets
Current liabilities
Borrowings
Trade and other payables
Current tax liabilities
Derivative financial liabilities
Provisions
Non-current liabilities
Borrowings
Retirement benefit obligations
Provisions
Deferred tax liabilities
Derivative financial liabilities
22
24
23
27
22
24
25
27
15
23
Total liabilities
Net assets
Equity
Share capital
Share premium
Retained earnings
Exchange reserve
Hedging reserve
Merger reserve
28
29
29
29
48.4
51.7
107.8
39.0
(0.2)
65.9
48.2
51.7
78.2
42.0
(2.5)
65.9
312.6
16.4
283.5
18.0
Total equity
329.0
301.5
The financial statements on pages 58 to 98 were approved by the Board of Directors on 7 November 2012 and signed on its behalf by:
M S Abrahams
Chairman
Shareholders' equity
215.4
221.4
20.9
4.5
Remuneration
12
13
14
15
23
Governance
2011
£m
Business Review
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial assets
Cash and cash equivalents
2012
£m
Overview
Non-current assets
Property, plant and equipment
Intangible assets
Other investments
Deferred tax assets
Derivative financial assets
Notes
R J Perry
Registered Number: 329377
60
Consolidated cash flow statement
2012
£m
2011
£m
88.6
69.6
31.4
1.8
(1.7)
(4.2)
(0.3)
(0.7)
19.7
0.8
27.3
1.0
0.1
(4.9)
(1.2)
(1.5)
14.4
1.0
Operating cash flow before movement in working capital
Movement in inventories
Movement in trade and other receivables
Movement in trade and other payables
135.4
(0.5)
(0.8)
(7.0)
105.8
(22.1)
(18.7)
29.6
Net cash from operations
Taxation paid
127.1
(23.5)
94.6
(14.8)
Net cash from operating activities
103.6
79.8
Investing activities:
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Purchase of intangible assets
Disposal of intangible assets
Disposal of investments
Acquisition of businesses
Disposal of businesses
Interest received
(26.4)
0.4
(2.5)
0.2
(34.3)
0.5
(14.7)
0.7
(0.9)
0.1
(29.9)
0.1
1.5
(62.1)
(43.1)
(15.4)
(2.6)
(12.8)
(17.6)
11.1
(13.8)
(0.8)
(12.7)
(108.3)
158.5
Net cash (used in)/from financing activities
(37.3)
22.9
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 September 2011
Exchange movements
4.2
104.3
0.2
59.6
44.7
-
108.7
104.3
Notes
Adjustments for:
Depreciation of property, plant and equipment and amortisation of intangible assets
Impairment of property, plant and equipment
Impairment of goodwill
Impairment of associates
Release of deferred consideration on acquisitions
Movement in retirement benefit obligations
Movement in provisions
Finance income
Finance costs
Other non-cash movements
33
Net cash used in investing activities
Financing activities:
Dividends paid to Company’s shareholders
Dividends paid to non-controlling interests
Interest paid
Repayment of borrowings
New borrowings
Cash and cash equivalents at 31 August 2012
61
10
18
Consolidated statement of changes in equity
Attributable to owners of the parent
Share
premium
£m
Retained
earnings
£m
Exchange
reserve
£m
At 1 September 2010
Profit for the year
Cash flow hedges
23
23
Actuarial gains on defined benefit
post-retirement schemes
25
9
Total other comprehensive (expense)/income
Transactions with owners:
Dividends paid in the year
10
Shares issued in the year
28,29
Share-based payments
26
Tax on transactions with owners
9
Total transactions with owners
48.0
-
51.7
-
49.4
47.2
43.9
-
(1.8)
-
64.2
-
255.4
47.2
1.5
2.2
256.9
-
-
-
(1.9)
-
1.5
(3.0)
-
(1.9)
1.5
(3.0)
0.9
-
(1.0)
-
-
9.8
(2.9)
6.9
(1.9)
0.8
(0.7)
-
9.8
(2.1)
4.3
0.9
0.2
0.2
-
(13.8)
(0.1)
0.7
(12.5)
0.4
(25.3)
-
-
1.7
1.7
(13.8)
1.8
0.7
(12.5)
0.4
(23.4)
(0.8)
14.2
13.4
At 1 September 2011
Profit for the year
Cash flow hedges
23
23
Actuarial losses on defined benefit
post-retirement schemes
25
9
Total other comprehensive (expense)/income
Transactions with owners:
Dividends paid in the year
10
28
26
Tax on transactions with owners
9
Transfer of non-controlling
interests to borrowings
22
Total transactions with owners
48.2
-
51.7
-
78.2
58.6
42.0
-
(2.5)
-
65.9
-
283.5
58.6
18.0
3.8
-
-
-
(3.0)
-
(0.2)
3.2
-
(3.0)
(0.2)
3.2
(0.2)
-
-
-
(21.1)
4.6
(16.5)
(3.0)
(0.7)
2.3
-
(21.1)
3.9
(17.2)
(0.2)
0.2
-
-
(15.4)
(0.2)
0.9
1.6
0.6
-
-
-
(15.4)
0.9
1.6
0.6
(2.6)
(1.8)
-
0.2
-
(12.5)
-
-
-
(12.3)
(0.8)
(5.2)
(17.5)
At 31 August 2012
48.4
51.7
312.6
16.4
329.0
Notes
1.5
(3.0)
9.8
(2.1)
5.2
(14.6)
1.8
0.7
1.7
0.4
(10.0)
301.5
62.4
(3.2)
(0.2)
3.2
(21.1)
3.9
(17.4)
(18.0)
0.9
(0.2)
0.6
(0.8)
65.9
49.4
Remuneration
(0.2)
Total
equity
£m
Governance
39.0
Merger
reserve
£m
Business Review
107.8
Hedging
reserve
£m
Overview
Noncontrolling
Total
interests
£m
£m
Share
capital
£m
62
Notes to the Group financial statements
1.
Significant accounting policies
Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the
European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The Company has elected to prepare its Company
financial statements in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”). The Group financial statements are prepared
under the historical cost convention, as modified by the revaluation of land and buildings and financial assets and financial liabilities (including
derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2.
The following standards or interpretations to existing standards have been adopted for the first time during the year:
IAS 24 (Revised) ‘Related Party Disclosures’
Amendment to IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’
Amendment to IFRS 7 ‘Financial Instruments: Disclosures’
The following standards or interpretations to existing standards have been published but are not mandatory for the year ended 31 August 2012
and consequently have not been adopted by the Group in the year:
Amendment to IAS 1 ‘Presentation of Financial Statements’
Amendment to IAS 12 ‘Income Taxes’
IAS 19 (Revised) ‘Employee Benefits’
IAS 27 (Revised) ‘Separate Financial Statements’
IAS 28 ‘Investments in Associates and Joint Ventures’
Amendment to IAS 32 ‘Financial Instruments: Presentation’
Amendment to IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’
Amendment to IFRS 7 ‘Financial Instruments: Disclosures’
IFRS 9 ‘Financial Instruments: Classification and Measurement’
IFRS 10 ‘Consolidated Financial Statements’
IFRS 11 ‘Joint Arrangements’
IFRS 12 ‘Disclosures of Interests in Other Entities’
IFRS 13 ‘Fair Value Measurement’
IFRIC 20 ‘Stripping Costs in the Production Phase of a Surface Mine’
None of these standards or interpretations are expected to have a significant impact on the Group’s reported results or financial position.
At 31 August 2012, the Group presented deferred taxation balances on a net basis where there is a legally enforceable right of offset of current
tax and there is an intention to settle the balances net. Previously these have been presented gross. The 2011 comparatives in the consolidated
balance sheet and related notes have been reclassified, resulting in a reduction in both deferred tax assets and deferred tax liabilities of £7.5m.
There was no impact on net assets, cash flows or the consolidated income statement. Further details can be found in note 15.
At 31 August 2012, the Group presented derivative financial instruments in their constituent parts as net investments hedges or cash flow hedges
and as non-current or current as applicable. Previously the net amount has been presented within non-current liabilities. The 2011 comparatives
in the consolidated balance sheet and related notes have been reclassified, resulting in an increase in non-current assets of £4.7m, current
assets of £0.1m and non-current liabilities of £7.2m and a reduction in non-current liabilities of £2.4m. There was no impact on net assets, cash
flows or the consolidated income statement. Further details can be found in note 23.
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
63
Non-controlling interests in subsidiaries are identified separately from the Group’s equity. Non-controlling interests consist of the amount of
those interests at the date of acquisition and the non-controlling interest’s share of changes in equity since the date of acquisition.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Foreign currencies
(a) Functional and presentation currency
The individual financial statements of each entity in the Group are presented in the currency of the primary economic environment in which it
operates (the functional currency). The Group financial statements are presented in pounds sterling, which is the presentation currency of
the Group.
Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of that operation and
are retranslated at the closing rate at each balance sheet date. The Group has adopted the transitional provisions of IFRS 1 to not apply this to
goodwill arising on acquisitions prior to 1 September 2004, the date of transition to IFRS.
Revenue recognition
Revenue is measured at the fair value of the consideration receivable and represents amounts receivable for goods and services provided in the
normal course of business, net of discounts, VAT and other sales related taxes. Revenue from the sale of goods is recognised when the significant
risks and rewards of ownership have passed to the buyer, principally on despatch on domestic sales and in accordance with shipping terms for
export sales. Revenue from short-term service contracts is recognised in the period in which the services are completed. Interest income relates
to bank interest or similar income and is recognised on an accruals basis using the effective interest method.
(c) Net investment in foreign operations
For the consolidation of operations where the functional currency is different to the Group’s presentation currency, the assets and liabilities are
translated at exchange rates prevailing on the balance sheet date and income and expenses are translated at the average exchange rates for the
period. Exchange differences arising are recognised directly in equity in the exchange reserve. On disposal of such operations, the cumulative
exchange differences are included in the profit or loss on disposal.
Remuneration
(b) Transactions and balances
Transactions in currencies other than an entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities are retranslated at the rates prevailing on the balance sheet date.
Non-monetary items measured at historical cost are not retranslated. Exchange differences arising on the settlement and retranslation of
monetary items are recognised in the income statement in the period.
Governance
(b) Investments in associates
An associate is an entity over which the Group has significant influence, but not control, over the financial and operating policy decisions of the
entity. The Group’s interest in associates is incorporated in the financial statements using the equity method. Investments in associates are
carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate,
less any impairment in the value of investments. Losses of associates in excess of the Group’s interest in those associates are not recognised.
Where a Group entity transacts with an associate, profits and losses are eliminated to the extent of the Group’s interest in that entity.
Business Review
(a) Subsidiaries
A subsidiary is an entity over which the Group has the power to control the financial and operating policy decisions of the entity so as to obtain
benefits from its activities. The acquisition of subsidiaries is accounted for using the acquisition method. The consideration for the acquisition is
measured at the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued by the Group at the
date of completion. Costs directly attributable to the acquisition are recognised in the income statement in the period in which they are incurred.
The subsidiary’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the date of acquisition.
Subsidiaries acquired or disposed of during the year are consolidated from the effective date of acquisition or up to the effective date of disposal,
as appropriate. Where necessary, the accounting policies of acquired subsidiaries are adjusted to bring them into line with those used by
the Group.
Overview
Basis of consolidation
The Group financial statements comprise the financial statements of Fenner PLC and subsidiaries controlled by the Group as at 31 August
each year.
64
Notes to the Group financial statements continued
1.
Significant accounting policies continued
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Assets held under finance leases are included in property, plant and equipment at the lower of their fair value at the inception of the lease and the
present value of the minimum lease payments. The corresponding liability is included in the balance sheet as a finance lease obligation. Lease
payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognised in the income statement.
Rentals payable under operating leases are recognised in the income statement on a straight-line basis over the term of the relevant lease.
Government grants
Government grants in respect of property, plant and equipment are treated as deferred income in the balance sheet and are recognised in the
income statement over the expected useful life of the relevant asset. Government grants in respect of revenue expenditure are recognised in the
income statement in the period in which the related expenditure is incurred.
The Group operates equity-settled and cash-settled share schemes for certain employees.
The cost of equity-settled share-based payments is measured at fair value at the date of grant, excluding the effect of non market-based vesting
conditions. The cost is recognised in the income statement on a straight-line basis over the vesting period with the corresponding amount
credited to equity, based on an estimate of the number of shares that will eventually vest. The fair values are measured using the Binomial optionpricing model and the Monte Carlo simulation approach.
The cost of cash-settled share-based payments is measured as per the equity-settled payments, except that it is recalculated at each subsequent
reporting date. In addition, the corresponding amount is credited to trade and other payables instead of equity.
Post-retirement benefits
The Group operates various pension schemes. The schemes are funded through trustee-administered funds, determined by periodic actuarial
calculations. The Group has both defined benefit and defined contribution schemes.
For defined benefit schemes, the liability recognised in the balance sheet is the present value of the defined benefit obligation at the balance
sheet date less the fair value of scheme assets, together with adjustments for unrecognised past service costs. The defined benefit obligation is
calculated annually by independent qualified actuaries using the projected unit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the
currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Current
service costs are recognised in the income statement. Net finance costs or income are recognised in the income statement in the period in which
they are incurred. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited
to equity in the statement of comprehensive income in the period in which they arise. Past service costs are recognised immediately in the income
statement unless the changes to the pension scheme are conditional on the employees remaining in service for a specified period of time (the
vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period.
For defined contribution schemes, payments are recognised in the income statement as they are incurred. The Group has no further payment
obligations once the contributions have been paid. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction
in the future payments is available.
Some Group companies provide post-retirement healthcare benefits to their retirees. The expected costs of these benefits are accrued over the
period of employment using the same accounting methodology as used for defined benefit pension schemes. Actuarial gains and losses arising
from experience adjustments and changes in actuarial assumptions are charged or credited to equity in the statement of comprehensive income
in the period in which they arise. These obligations are valued annually by independent qualified actuaries.
The Group has adopted the transitional provisions of IFRS 1 to recognise in full the cumulative actuarial gains and losses at 1 September 2004,
the date of transition to IFRS.
Exceptional items
Exceptional items are items of income and expense that are material and relevant to an understanding of the Group’s financial performance
and may be operating or non-operating in nature. In accordance with IAS 1 ‘Presentation of Financial Statements’, such items are presented
separately on the face of the income statement and analysed in the notes to the financial statements.
65
Taxation
Taxation expense represents the sum of the current tax payable and deferred tax.
Dividends
Dividends proposed by the Board are recognised in the financial statements when they have been approved by shareholders at the AGM. Interim
dividends are recognised when they are paid.
Business Review
Deferred tax is recognised using the liability method for temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, unless specifically exempt. Deferred tax assets
are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be
utilised. Deferred tax is calculated using tax rates that are expected to apply in the period when the liability is settled or the asset realised. The
resulting charge or credit is recognised in the income statement except when it relates to items recognised directly in equity, in which case the
charge or credit is also recognised directly in equity.
Overview
Current tax is the tax expected to be payable on taxable profit for the period using tax rates that have been enacted or substantively enacted by
the balance sheet date, together with any adjustments in respect of previous years. Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that are not taxable or deductible or are taxable or deductible in other years.
Segmental reporting
Segmental information is reported in a manner consistent with the information provided to the Chief Operating Decision Maker. This information
is used for allocating resources and assessing performance of the operating segments.
Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.
The Group has adopted the transitional provisions of IFRS 1 to record the previously revalued freehold land and buildings as deemed cost at
1 September 2004, the date of transition to IFRS.
Freehold buildings
Leasehold buildings
Plant, machinery and equipment
40 years
Unexpired term of lease
3-10 years
Remuneration
Freehold land is not depreciated. Depreciation on other assets is recognised in the income statement to write down the value of the asset to its
residual value on a straight-line basis over the estimated useful life of the asset from the date it is brought into use. Estimated useful lives most
widely applied are as follows:
Governance
Property, plant and equipment is stated at historical cost or deemed cost less accumulated depreciation and any accumulated impairment losses.
Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in the income statement.
On disposal of a subsidiary, associate or joint venture, the attributable amount of goodwill is included in the profit or loss on disposal.
Goodwill arising on acquisitions prior to 1 September 2004, the date of transition to IFRS, has been recorded at the previous UK GAAP carrying
amount at that date, subject to any impairment required at that date. Goodwill written off to reserves under UK GAAP prior to 1998 continues to be
included in reserves and is not included in any subsequent profit or loss on disposal.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable
assets and liabilities of a subsidiary, associate or joint venture at the date of acquisition. Goodwill is initially recognised as an asset at cost and
is subsequently measured at cost less any accumulated impairment losses. The carrying amount of goodwill is reviewed for impairment annually,
or more frequently when events or changes in circumstances indicate that the carrying amount may be impaired. Any impairment is recognised in
the income statement and is not subsequently reversed. Any excess of the Group’s interest in the fair value of the identifiable assets and liabilities
of the acquired entity over cost is recognised immediately in the income statement. Goodwill arising on the acquisition of an associate is included
within the carrying amount of the investment.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term
of the relevant lease.
66
1.
Significant accounting policies continued
Other intangible assets
Intangible assets acquired in a business combination are initially recognised at their fair value. Other intangible assets are initially recognised at
cost. Intangible assets are subsequently stated at fair value or cost less accumulated amortisation and any accumulated impairment losses.
Amortisation is recognised in the income statement on a straight-line basis over the estimated useful life of the asset. Estimated useful lives
most widely applied are as follows:
Computer software
Brands and trademarks
Customer relationships
Non-compete agreements
3-5 years
5-20 years
5-16 years
5 years
Order book
Leases
Technology based assets
within 1 year
5-7 years
5 years
Impairment
The carrying amounts of goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually, or more frequently
when events or changes in circumstances indicate that the carrying amount may be impaired. The carrying amount of property, plant and
equipment and intangible assets with finite useful lives are reviewed for impairment when events or changes in circumstances indicate that the
carrying amount may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent
of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. Goodwill is allocated to those cash-generative units that are expected
to benefit from the business combination in which the goodwill arose.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using an appropriate pre-tax discount rate. If the recoverable amount of an asset or cash-generating unit
is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.
Any impairment loss is recognised in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no
impairment loss previously been recognised for the asset or cash-generating unit. Any reversal of an impairment loss is recognised in the income
statement. Impairment losses on goodwill are not subsequently reversed.
Inventories
Inventories are stated at the lower of cost and net realisable value with allowance for obsolete or slow moving items. Cost comprises direct
materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing inventories to their present location
and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Financial assets
Financial assets and financial liabilities are recognised in the balance sheet when the Group becomes a party to the contractual provisions of
the instrument.
(a) Trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are recognised
initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits available on demand and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement,
cash and cash equivalents also includes bank overdrafts as they are an integral part of the Group’s cash management.
Financial liabilities
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
(a) Trade payables
Trade payables are obligations to pay for goods or services acquired from suppliers in the ordinary course of business. They are recognised
initially at fair value and subsequently measured at amortised cost using the effective interest method.
67
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments, including forward foreign currency contracts, options, interest rate and currency swaps and nonderivative cash instruments, including foreign currency borrowings, to hedge its exposure to the financial risks of changes in foreign exchange
rates or interest rates. The Group does not use derivative financial instruments for speculative purposes.
Overview
(b) Borrowings
Bank loans and overdrafts and other loans are initially measured at fair value less direct arrangement fees and subsequently measured at
amortised cost.
Derivative financial instruments are initially measured at fair value on the contract date and are subsequently measured at fair value at each
balance sheet date.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting or the ineffective portion of financial
instruments that are designated and effective as hedges are recognised in the income statement as they are incurred.
Business Review
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised
directly in equity. Amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects the
income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge
accounting. Any cumulative gain or loss on the hedging instrument in equity at that time is retained in equity until the forecast transaction occurs.
If a hedged transaction is no longer expected to occur, the cumulative gain or loss in equity is transferred to the income statement in the period.
2.
Critical accounting estimates and judgements
The preparation of financial statements requires management to make certain assumptions, estimates and judgements that may affect the
reported amounts of assets, liabilities, income and expenses. These are based on historical experience and any other factors, including
expectations of future events, that are considered appropriate and these are continually reviewed. Subsequent actual results may however differ
from these estimates and judgements. Areas where assumptions, estimates and judgements may give rise to risk of material adjustments to the
carrying values of assets and liabilities in the next financial year are as follows:
Inventory provisions
The provision for inventory write downs is based on management’s estimate of the net realisable value of inventories. See note 16.
Impairment of trade receivables
Impairment of trade receivables is based on management’s estimate of the recoverability of receivable amounts. This is based on a variety of
factors including past default experience. See note 17.
Impairment testing for the carrying amount of goodwill is based on estimated recoverable amounts of cash-generating units, based on value in
use calculations. This is calculated using cash flow projections based on financial forecasts for a period of three years and, thereafter,
extrapolated using estimated growth rates in the respective territories. Cash flows are discounted using the Group’s pre-tax cost of capital after
adjusting for a country risk premium, estimated to reflect the risk profiles in the respective territories. See note 13.
Taxation
The Group is subject to taxation in various jurisdictions and uncertainties exist over the interpretation of the respective tax regulations and the
ultimate determination by the tax authorities in those jurisdictions. Taxation is calculated based on the best estimates of amounts expected to be
due. Where the final tax determination is different to the amounts initially recorded, they are subsequently adjusted in the period in which such
determination is made. Deferred taxation is recognised based on the estimated likelihood that future taxable profits will be available against
which temporary differences can be utilised. See notes 9 and 15.
Remuneration
Share capital
Ordinary shares are classified as equity. Equity instruments issued are recorded at the proceeds received net of directly attributable issue costs.
Governance
Provisions
Provisions in respect of restructuring costs, property and environmental costs, contingent and deferred consideration on acquisition and
redemption liability on acquisitions are recognised when the Group has a present obligation as a result of a past event and it is probable that the
Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the
obligation at the balance sheet date and are discounted to present value where the effect is material using a suitable pre-tax rate which matches
the maturity of and risks associated with that liability.
68
2.
Critical accounting estimates and judgements continued
Retirement benefit obligations are based on actuarial valuations that use a number of assumptions. These include the discount rate, which is
based on the interest rate of high quality corporate bonds denominated in the currency of the benefits and that have terms to maturity
approximating to the terms of the related obligation, expected rates of return on assets, inflation rates, expected salary increases and mortality.
See note 25.
Provisions
Provisions represent management’s best estimate of expenditure required to settle obligations existing at the balance sheet date. For certain
obligations within contingent and deferred consideration on acquisitions and redemption liability on acquisitions, payments are contingent on the
future performance of acquired businesses and this is estimated based on financial forecasts. Where material, obligations are discounted using
suitable rates based on borrowings that match the maturity of the consideration being discounted. See note 27.
3.
Segment information
IFRS 8 ‘Operating Segments’ requires segment information to be presented on the same basis as that used for internal management reporting.
For the purposes of managing the business, the Group is organised into two reportable segments: Engineered Conveyor Solutions and Advanced
Engineered Products.
Engineered Conveyor
Solutions
Manufacture of rubber ply, solid woven and steel cord conveyor belting for mining, power
generation and industrial applications with complementary service operations which design, install,
monitor, maintain and operate conveyor systems for mining customers.
Advanced Engineered
Products
Manufacture of precision polymer products including:
- precision drives for computer peripherals, copiers and ATMs;
- problem-solving power transmission and motion transfer components;
- silicone and complex hoses for heavy duty trucks, buses and off-road vehicles;
- seals and sealing solutions for the fluid power and oil and gas industries;
- technical textiles for medical and industrial applications and silicone based products for
medical applications;
- rollers for digital image processing and medical diagnostics; and
- fluropolymer components for fluid and gas handling.
Operating segments within these reportable segments have been aggregated where they have similar economic characteristics with similar
products and services, production processes, methods of distribution and customer types.
The Chief Operating Decision Maker (“CODM”) for the purpose of IFRS 8 is the Board of Directors. The financial position of the segments is
reported to the CODM on a monthly basis and this information is used to assess the performance of the Group and to allocate resources on an
appropriate basis.
Segment performance is reviewed down to the operating profit level. Financing costs and taxation are managed on a Group basis so these costs
are not allocated to operating segments.
Transfer prices on inter-segment revenues are on an arm’s length basis in a manner similar to transactions with third parties.
69
Segment information for the years ended 31 August 2012 and 31 August 2011 is as follows:
Advanced
Engineered Products
2012
£m
2011
£m
2012
£m
2011
£m
Segment result
Total segment revenue
Inter-segment revenue
593.4
-
510.7
-
239.6
(2.4)
Revenue from external customers
593.4
510.7
237.2
Unallocated
Corporate
Total
2012
£m
2011
£m
2012
£m
2011
£m
210.0
(2.4)
-
-
833.0
(2.4)
720.7
(2.4)
207.6
-
-
830.6
718.3
84.4
(7.1)
61.1
(5.5)
43.6
(4.1)
38.2
(3.4)
(9.2)
-
(7.9)
-
118.8
(11.2)
91.4
(8.9)
Operating profit
77.3
55.6
39.5
34.8
(9.2)
(7.9)
107.6
82.5
Net finance costs
Taxation
(19.0)
(26.2)
(12.9)
(20.2)
Profit for the year
62.4
49.4
Net assets
506.8
(190.9)
240.6
(46.8)
232.8
(55.9)
21.0
(233.8)
24.2
(215.5)
798.1
(469.1)
763.8
(462.3)
348.0
315.9
193.8
176.9
(212.8)
(191.3)
329.0
301.5
18.4
14.4
-
8.0
13.6
0.7
10.4
5.7
1.8
7.6
4.7
0.4
0.1
0.1
-
0.1
-
28.9
20.2
1.8
15.6
18.4
1.1
23.0
43.1
8.0
7.3
-
-
31.0
50.4
Total assets and liabilities classified within Unallocated Corporate principally comprise deferred tax, borrowings and UK retirement benefit obligations.
Geographical disclosures
The Group operates in five main geographical areas: United Kingdom, Rest of Europe, Americas, Asia Pacific and Africa.
Geographical information for the years ended 31 August 2012 and 31 August 2011 is as follows:
Non-current Assets
Revenue
2012
£m
2011
£m
2012
£m
2011
£m
2012
£m
2011
£m
28.4
83.7
404.7
274.2
39.6
23.6
77.9
353.0
223.8
40.0
30.6
23.0
228.7
148.0
6.5
29.0
24.6
210.1
138.3
7.9
2.0
4.4
10.7
11.4
0.4
1.8
1.6
8.9
2.2
1.1
830.6
718.3
436.8
409.9
28.9
15.6
Revenue is based on the region in which the customer is located. Non-current assets and capital expenditure are based on the region in which the
assets are located. Non-current assets exclude deferred tax assets and derivative financial assets.
United Kingdom
Rest of Europe
Americas
Asia Pacific
Africa
Capital Expenditure
Capital expenditure relates to property, plant and equipment and intangible assets, excluding items acquired under finance leases. Amortisation
excludes amortisation of intangible assets acquired.
Remuneration
Other segment information
Capital expenditure
Depreciation and amortisation
Impairment of non-current assets
Property, plant and equipment and intangible
assets on acquisition
536.5
(188.5)
Governance
Segment assets and liabilities
Total assets
Total liabilities
Business Review
Operating profit before amortisation of intangible
assets acquired
Overview
Engineered
Conveyor Solutions
No individual customer or group of customers represent more than 10% of Group revenue.
70
4.
Revenue
Revenue is analysed as follows:
2012
£m
2011
£m
Sales of goods
Service contracts
701.8
128.8
623.2
95.1
Revenue
Interest income (note 7)
830.6
0.7
718.3
1.5
Total revenue
831.3
719.8
2012
£m
2011
£m
312.1
231.6
19.7
1.8
11.2
0.5
(0.1)
(1.7)
2.7
(0.4)
11.8
277.7
204.7
18.0
1.0
8.9
0.4
0.1
0.2
0.3
2.6
(0.1)
10.0
5.
Operating profit
Operating profit has been arrived at after charging/(crediting):
Material cost of sales
Aggregate employment costs
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortisation of other intangible assets
Impairment of associates
(Profit)/loss on disposal of property, plant and equipment
Release of deferred consideration on acquisitions
Foreign exchange losses
Research and development costs
Government grants
Operating lease charges
Amortisation of intangible assets acquired is classified within administrative expenses in the consolidated income statement.
Total fees payable by the Group to PricewaterhouseCoopers LLP for work performed in respect of the audit and other services provided to the
Company and its subsidiary undertakings during the period are as follows:
2012
2011
£m
£m
Fees payable to the Company’s auditor for the audit of the Company and Group financial statements
Fees payable to the Company’s auditor for other services to the Company’s subsidiary undertakings:
- audit
- taxation advisory services
- other non-audit services
0.1
0.1
0.6
0.1
0.1
0.6
0.2
0.2
Further details of non-audit services can be found in the Audit Committee Report on page 39.
In addition, fees for actuarial and audit services of less than £0.1m (2011: less than £0.1m) were borne by the Fenner Pension Scheme.
71
6.
Employees
178.5
16.2
6.6
2.0
0.7
0.7
231.6
204.7
2012
2011
3,669
636
665
3,368
596
584
4,970
4,548
2012
£m
2011
£m
0.7
1.5
2012
£m
2011
£m
Interest payable on bank overdrafts and loans
Interest payable on other loans
4.6
11.0
7.4
5.3
Interest payable
15.6
12.7
Interest on defined benefit post-retirement schemes (note 25)
Interest on the unwinding of discount on provisions (note 27)
Finance charge on redemption liability (note 27)
Finance charge on other loans (note 22)
0.4
1.5
1.7
0.5
0.4
1.3
-
Notional interest
4.1
1.7
19.7
14.4
The average monthly number of employees during the year, including executive directors, is as follows:
Production
Selling and distribution
Administration
Information on directors’ remuneration is included in the audited part of the Board Remuneration Report on pages 47 to 49.
7.
Finance income
Bank interest receivable
8.
Finance costs
Total finance costs
203.9
17.5
7.6
1.6
0.9
0.1
Remuneration
Wages and salaries
Social security costs
Pension costs - defined contribution schemes
Pension costs - defined benefit schemes
Share-based payments - equity-settled
Share-based payments - cash-settled
Governance
2011
£m
Business Review
2012
£m
Overview
Aggregate employment costs are as follows:
72
9.
Taxation
Current taxation
UK corporation tax:
- current year
- adjustments in respect of prior years
Overseas tax:
- current year
Deferred taxation
Origination and reversal of temporary differences:
- UK
- overseas
- current year
Total taxation
2012
£m
2011
£m
0.6
-
1.7
0.1
0.6
1.8
24.0
-
17.0
(0.1)
24.0
16.9
24.6
18.7
1.1
1.7
(0.3)
0.8
(0.2)
-
1.6
1.5
26.2
20.2
UK corporation tax is calculated at an average rate of 25.17% (2011: 27.17%) of the estimated assessable profit for the year. Overseas tax is
calculated at the rates prevailing in the respective jurisdictions.
The charge for the year and effective tax rate can be reconciled to profit per the income statement as follows:
2012
£m
2012
%
2011
£m
2011
%
88.6
Taxation at the average UK corporation tax rate of 25.17% (2011: 27.17%)
Expenses/income not allowable/taxable in determining taxable profit
Effect of overseas tax rates
Other temporary differences not previously provided for
22.3
0.3
4.0
(0.4)
25
5
-
18.9
(0.9)
2.5
(0.3)
27
(1)
3
-
26.2
30
20.2
29
69.6
Taxation recognised directly in equity comprises a deferred taxation credit of £3.9m (2011: charge of £1.7m) and a current taxation credit of £0.6m
(2011: £nil). Deferred taxation in equity relates to a credit of £4.6m (2011: charge of £2.9m) in respect of actuarial gains and losses on defined
benefit post-retirement schemes and a charge of £0.7m (2011: credit of £0.8m) in respect of cash flow and net investment hedges recognised in
other comprehensive income and a credit of £nil (2011: £0.4m) in respect of share-based payments recognised in transactions with owners.
Current taxation in equity relates to a credit of £0.6m (2011: £nil) in respect of share-based payments recognised in transactions with owners.
In the UK, the Finance Act 2012, which was substantively enacted on 17 July 2012, included legislation reducing the main rate of corporation
tax from 25% to 24% from 1 April 2012 and to 23% from 1 April 2013. This change has been reflected in these financial statements, resulting in a
£0.7m charge to equity and a £0.1m charge to the income statement. A further reduction to the main rate is proposed to reduce the rate by 1% to
22% by 1 April 2014. The overall effect of the further changes from 23% to 22%, if these applied to the deferred tax balance at 31 August 2012,
would be to reduce deferred tax assets by £0.4m.
73
10. Dividends
5.1
10.3
4.6
9.2
15.4
13.8
6.8
13.5
5.1
10.3
20.3
15.4
The interim dividend for the year ended 31 August 2012 was paid on 5 September 2012. The proposed final dividend for the year ended
31 August 2012 is subject to approval by shareholders at the AGM. Consequently, neither has been recognised as liabilities at 31 August 2012.
If approved, the final dividend will be paid on 4 March 2013 to shareholders on the register on 1 February 2013.
11. Earnings per share
2011
£m
Earnings
Profit for the year attributable to owners of the parent
Notional interest
Taxation attributable to amortisation of intangible assets acquired and notional interest
58.6
11.2
4.1
(4.2)
47.2
8.9
1.7
(3.7)
Profit for the year before amortisation of intangible assets acquired and notional interest
69.7
54.1
number
number
Weighted average number of shares in issue - basic
Effect of share options and contingent long-term incentive plans
193,167,219
1,128,734
192,220,928
1,525,948
Weighted average number of shares in issue - diluted
194,295,953
193,746,876
pence
pence
36.1
35.9
30.3
30.2
28.1
27.9
24.6
24.4
Earnings per share
Underlying - Basic (before amortisation of intangible assets acquired and notional interest)
Underlying - Diluted (before amortisation of intangible assets acquired and notional interest)
Basic
Diluted
193,281,396 192,335,105
(114,177)
(114,177)
Remuneration
Average number of shares
Weighted average number of shares in issue
Weighted average number of shares held by the Employee Share Ownership Plan Trust
Governance
2012
£m
Business Review
Dividends neither paid nor approved in the year
Interim dividend for the year ended 31 August 2012 of 3.5p (2011: 2.65p) per share
Final dividend for the year ended 31 August 2012 of 7.0p (2011: 5.35p) per share
2011
£m
Overview
Dividends paid or approved in the year
2012
£m
Underlying earnings per share measures have been presented to provide a clearer understanding of the underlying performance of the Group.
74
12. Property, plant and equipment
Freehold
property
£m
Plant,
Leasehold machinery and
equipment
property
£m
£m
Total
£m
Cost
At 1 September 2010
Additions
Disposals
Reclassifications
Exchange differences
87.8
0.8
1.8
(0.9)
0.1
1.7
16.3
1.3
(0.2)
(0.2)
(0.6)
233.3
12.6
5.4
(3.4)
0.1
4.6
337.4
14.7
7.2
(4.5)
5.7
At 1 September 2011
Additions
Disposals
Transfer to intangible assets
Reclassifications
91.3
1.2
(0.6)
0.4
(0.6)
16.6
1.3
0.3
252.6
24.5
1.8
(5.1)
(0.2)
(0.4)
(5.0)
360.5
27.0
1.8
(5.7)
(0.2)
(5.3)
At 31 August 2012
91.7
18.2
268.2
378.1
Accumulated depreciation
At 1 September 2010
Charge for the year
Impairment charge
Disposals
Reclassifications
14.5
1.8
1.0
(0.1)
0.1
0.3
3.6
0.8
(0.2)
(0.2)
116.8
15.4
(3.3)
(0.1)
2.5
134.9
18.0
1.0
(3.6)
2.6
At 1 September 2011
Charge for the year
Disposals
17.6
1.8
(0.6)
(0.6)
4.0
1.1
0.1
131.3
16.8
(4.8)
(4.0)
152.9
19.7
(5.4)
(4.5)
At 31 August 2012
18.2
5.2
139.3
162.7
Net book value
At 31 August 2012
73.5
13.0
128.9
215.4
At 31 August 2011
At 31 August 2010
73.7
73.3
12.6
12.7
121.3
116.5
207.6
202.5
The impairment charge in the prior year was classified within administrative expenses in the consolidated income statement.
The net book value of plant, machinery and equipment includes an amount of £1.7m (2011: £1.5m) in respect of assets held under finance leases.
The net book value of property, plant and equipment includes an amount of £14.8m (2011: £4.6m) in respect of assets under construction.
Borrowings of £0.4m (2011: £0.5m) are secured on freehold property.
At 31 August 2012, the Group had entered into contractual commitments for the purchase of property, plant and equipment amounting to £2.3m
(2011: £8.6m).
75
13. Intangible assets
Intangible assets acquired
Cost
At 1 September 2010
Additions
Disposals
Brands and
trademarks
£m
Customer
relationships
£m
Non-compete
agreements
£m
Other
£m
Computer
software
£m
Total
£m
2.9
0.2
-
6.6
0.9
(0.1)
(0.1)
197.4
0.9
43.2
(0.1)
(3.7)
At 1 September 2011
Additions
Disposals
Transfer from property, plant and equipment
118.1
8.1
0.2
23.0
0.1
86.2
18.5
1.2
2.4
-
3.1
0.2
-
7.3
2.5
(2.2)
0.2
-
237.7
2.5
29.2
(2.2)
0.2
1.5
At 31 August 2012
126.4
23.1
105.9
2.4
3.3
7.8
268.9
Accumulated amortisation and impairment losses
At 1 September 2010
Amortisation charge for the year
Disposals
2.7
-
4.7
1.4
-
13.1
7.3
-
(0.1)
(0.8)
-
2.2
0.2
-
4.7
0.4
(0.1)
(0.1)
27.4
9.3
(0.1)
(1.0)
At 1 September 2011
Amortisation charge for the year
Impairment charge
Disposals
2.7
1.8
-
6.0
1.4
-
19.6
9.2
0.4
0.4
-
2.4
0.2
-
4.9
0.5
(2.0)
-
35.6
11.7
1.8
(2.0)
0.4
At 31 August 2012
4.5
7.4
29.2
0.4
2.6
3.4
47.5
Net book value
At 31 August 2012
121.9
15.7
76.7
2.0
0.7
4.4
221.4
At 31 August 2011
At 31 August 2010
115.4
95.3
17.0
18.2
66.6
53.9
-
0.7
0.7
2.4
1.9
202.1
170.0
Other intangible assets acquired relate to order book, leases and technology based assets.
All intangible assets have finite useful lives except for goodwill.
The remaining useful lives at 31 August 2012 are approximately 11 to 16 years in respect of brands and trademarks, 2 to 14 years in respect of
customer relationships and 4 years in respect of non-compete agreements.
The impairment charge on goodwill relates to Xeridiem. The impairment review was triggered by a reduction in the projected cash flows in that
cash-generating unit and resulted in an impairment in the Half Yearly Financial Report. This is classified within administrative expenses in the
consolidated income statement.
-
Remuneration
67.0
22.2
(3.0)
Governance
22.9
0.5
(0.4)
Business Review
98.0
20.3
(0.2)
Overview
Goodwill
£m
76
13. Intangible assets continued
Impairment testing for goodwill
Goodwill acquired through business combinations is allocated at acquisition to the Group’s cash-generating units that are expected to benefit
from that business combination. The carrying amount of goodwill is allocated to cash-generating units as follows:
2012
£m
Fenner Dunlop (Americas, Europe and Australia)
Conveyor Belting (India)
Fenner Dunlop Conveyor Services (Americas)
Spliceline
Northern Belting Specialists
BBCS / LECS
Statewide Belting Service
Fenner Advanced Sealing Technologies (Process)
Fenner Advanced Sealing Technologies (Fluid Power)
Dawson Hose (UK)
Fenner Drives (US)
Prodesco
Fenner Precision (Buffalo)
Xeridiem
Multiseals
Transeals
Allison
2011
£m
14.3
2.0
13.7
1.0
2.7
12.4
5.5
14.3
2.0
13.4
1.0
2.7
12.5
5.5
16.0
28.2
2.2
3.4
7.1
2.9
1.5
0.9
3.7
4.4
15.7
28.7
2.2
3.3
6.9
2.9
3.3
1.0
-
121.9
115.4
The carrying amount of goodwill is reviewed for impairment annually, or more frequently when events or changes in circumstances indicate that
the carrying amounts may be impaired. The recoverable amounts of cash-generating units are based on value in use calculations using
discounted cash flow projections. The key assumptions used to determine the value in use relate to profits derived from sales volumes, selling
prices and costs, growth rates and pre-tax discount rates.
Cash flow projections are based on financial forecasts for a period of three years which have been approved by Group management. The principal
components of these forecasts: sales volumes, selling prices and costs, are based on recent history and expected future changes in operating
conditions. Cash flows beyond a period of three years are extrapolated using estimated growth rates in the respective territories. These rates
range from 0.3% to 3.8% for all cash-generating units except for Conveyor Belting (India) where a rate of 7.3% has been applied. Cash flows are
discounted using the Group’s pre-tax weighted average cost of capital after adjusting for a country risk premium. A range of discount rates
between 9.4% to 11.8% were used for all cash-generating units except for Conveyor Belting (India) where a rate of 14.1% was used. The discount
rates reflect the risk profiles in the respective territories.
The above assumptions apply to all of the Group’s cash-generating units.
At 31 August 2012, there is significant headroom between the value in use calculation and the carrying value for all of the cash-generating units
in the above table except for Xeridiem which was impaired during the year.
77
14. Other investments
Cost
At 1 September 2010
Additions
Disposals
0.3
-
At 1 September 2011
Disposals
0.3
(0.3)
Accumulated impairment losses
At 1 September 2010
Impairment charge
At 1 September 2011
Disposals
Total
£m
0.1
(0.1)
0.1
0.3
(0.1)
-
0.3
(0.3)
-
-
-
0.1
-
0.1
0.1
(0.1)
-
0.1
(0.1)
-
-
-
Net book value
At 31 August 2012
-
-
-
At 31 August 2011
At 31 August 2010
0.2
-
0.1
0.2
0.1
Governance
At 31 August 2012
Business Review
At 31 August 2012
Other
£m
Overview
Associates
£m
The impairment charge in the prior year was classified within administrative expenses in the consolidated income statement.
Remuneration
Other investments comprised long-term loan notes of an unlisted equity holding. There was no material difference between the cost and fair
value of the investments.
78
15. Deferred tax
Deferred tax assets/(liabilities) are attributable to the following:
Assets
Intangible assets
Taxation losses
Fixed asset revaluation
Other short-term temporary differences
Offset between assets and liabilities
Liabilities
2012
£m
2011
£m
2012
£m
1.6
2.4
11.6
0.7
17.5
(12.9)
1.3
1.5
8.2
1.9
17.7
(7.5)
(9.7)
(9.8)
(0.3)
(0.8)
(0.4)
12.9
20.9
23.1
(8.1)
Intangible
assets
£m
Retirement
benefit
obligations
£m
Net
2012
£m
2011
£m
(9.0)
(8.9)
(0.9)
(0.5)
7.5
(8.1)
(7.4)
11.3
0.7
(0.8)
17.1
-
(7.7)
(7.4)
8.2
1.9
(0.9)
17.2
-
(11.8)
12.8
11.3
Other
temporary
differences
£m
Total
£m
2011
£m
Movements in net deferred tax assets/(liabilities) are as follows:
Property,
plant and
equipment
£m
Taxation
losses
£m
Fixed
asset
revaluation
£m
At 1 September 2010
(Charged)/credited to income statement
(Charged)/credited to equity
(4.6)
(3.0)
(0.4)
0.3
(1.8)
0.6
(5.9)
(0.3)
12.2
(1.2)
(2.9)
0.1
2.2
(0.3)
-
(0.9)
-
13.5
2.4
1.2
0.2
(0.1)
20.6
(1.5)
(1.7)
(6.1)
-
At 1 September 2011
(Charged)/credited to income statement
(Charged)/credited to equity
(7.7)
(0.3)
(0.1)
(7.4)
0.9
(1.0)
0.1
8.2
(1.3)
4.6
(0.2)
1.9
(1.3)
0.1
(0.9)
0.1
17.2
0.4
(0.7)
0.2
11.3
(1.6)
3.9
(1.0)
0.2
At 31 August 2012
(8.1)
(7.4)
11.3
0.7
(0.8)
17.1
12.8
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised. Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset of current tax and there
is an intention to settle the balances net. Deferred tax assets have not been recognised in respect of certain tax losses amounting to £0.3m
(2011: £1.1m) since it is not envisaged that such profits will be available in the foreseeable future. In addition, deferred tax assets have not been
recognised in respect of UK capital losses of £0.4m (2011: £0.4m) since it is not envisaged that suitable capital gains will be available in the
foreseeable future.
Deferred tax liabilities have not been recognised on the undistributed earnings of subsidiaries because the Group is in a position to control the
timing of reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The aggregate of
temporary differences in respect of this is £1.0m (2011: £0.8m).
16. Inventories
Raw materials
Work in progress
Finished goods
2012
£m
2011
£m
34.9
22.6
48.1
43.3
20.2
39.9
105.6
103.4
Inventories are presented net of provision for inventory write downs, based on management’s estimate of the net realisable value of inventories.
The amount charged to the income statement in the year in respect of write downs of inventories is £4.6m (2011: £6.2m). The amount credited to
the income statement in the year in respect of reversals of write downs of inventories is £0.7m (2011: £0.6m), principally resulting from the
subsequent sale of inventory previously provided for. These amounts are classified within cost of sales in the consolidated income statement. The
cost of inventories recognised as an expense in the year is £514.4m (2011: £443.2m).
79
17. Trade and other receivables
2011
£m
109.1
4.2
7.3
109.8
3.4
4.8
120.6
118.0
Overview
Trade receivables
Other receivables
Prepayments and accrued income
2012
£m
Trade receivables are presented net of provision for impairment of trade receivables of £2.0m (2011: £2.3m), estimated by management based on
past default experience and other factors as considered appropriate.
2012
£m
At 1 September 2011
New provisions charged to income statement during the year
Provisions not required credited to income statement during the year
Provisions utilised during the year
2011
£m
2.0
2.3
2012
£m
2011
£m
77.2
25.3
3.9
1.1
1.6
85.8
18.7
3.9
0.8
0.6
109.1
109.8
At 31 August 2012
New provisions and provisions not required are classified within administrative expenses in the consolidated income statement.
The ageing analysis of trade receivables not impaired, based on the due date, is as follows:
Not overdue
Less than one month
Between one and two months
Between two and three months
Between three and six months
Trade and other receivables are non-interest bearing. There is no material difference between the carrying amount and fair value of trade and
other receivables.
18. Cash and cash equivalents
2011
£m
78.4
30.3
71.9
32.4
108.7
104.3
Cash at bank and short-term deposits earn interest at floating rates based on bank deposit rates. Short-term deposits have an original maturity
of three months or less. There is no material difference between the carrying amount and fair value of cash and cash equivalents.
Cash at bank and in hand
Short-term deposits
2012
£m
Remuneration
2.6
1.0
(0.9)
(0.4)
Governance
2.3
0.4
(0.2)
(0.5)
Business Review
Movements in the provision for impairment of trade receivables are as follows:
80
19. Reconciliation of net cash flow to movement in net debt
2012
£m
Net increase in cash and cash equivalents
Net decrease/(increase) in borrowings resulting from cash flows
Movement in net debt resulting from cash flows
Finance leases on acquisition of businesses
New finance leases
Transfer of non-controlling interests from equity
Notional finance charge on other loans
Exchange movements
Movement in net debt in the year
Net debt at 1 September 2011
Net debt at 31 August 2012
2011
£m
4.2
6.5
59.6
(50.2)
10.7
(0.6)
(0.8)
(0.5)
(4.7)
9.4
(1.2)
(0.1)
0.5
4.1
(101.8)
8.6
(110.4)
(97.7)
(101.8)
Net debt comprises cash and cash equivalents of £108.7m (2011: £104.3m), current borrowings of £11.0m (2011: £16.8m) and non-current
borrowings of £195.4m (2011: £189.3m).
20. Financial risk management
In the normal course of business, the Group is exposed to certain financial risks, principally foreign exchange risk, interest rate risk, liquidity risk
and credit risk. These risks are managed by the central treasury function in conjunction with the operating units, in accordance with risk
management policies that are designed to minimise the potential adverse effects of these risks on financial performance. The policies are
reviewed and approved by the Board.
Foreign exchange risk
The Group has operations around the world and is therefore exposed to foreign exchange risk arising from net investments in foreign operations.
Where cost effective, the exposures arising from the translation of the net assets of the Group’s foreign operations are managed through the use
of borrowings or cross-currency swaps in the relevant foreign currency.
Some Group operations also enter into commercial transactions in currencies other than their functional currencies. Exposures arising from the
translation of foreign currency transactions are continually monitored and material exposures are managed through the use of forward contracts
or options once cash flows can be identified with sufficient certainty. Exposures arising from the translation of intra-group lending are managed
through the use of borrowings in the relevant foreign currency.
The following table shows the impact (due to the retranslation of non-functional currency monetary assets and liabilities in the Group's
operations) of a, reasonably possible, 10% movement in the Group’s principal foreign currency exchange rates at the year end date.
10% increase
Effect on
profit before
taxation
£m
10% decrease
Effect on
shareholders'
equity
£m
Effect on
profit before
taxation
£m
Effect on
shareholders'
equity
£m
31 August 2012
US dollar
Euro
Australian dollar
(0.1)
-
7.7
1.3
6.1
0.2
-
(9.5)
(1.6)
(7.5)
31 August 2011
US dollar
Euro
Australian dollar
(0.2)
(0.2)
-
6.1
1.4
5.8
0.2
0.3
-
(7.5)
(1.7)
(7.0)
The effect on profit before taxation is due to the retranslation of trade receivables, cash and cash equivalents, borrowings, trade payables and
derivative financial assets and liabilities denominated in non-functional currencies. The effect on shareholders’ equity is due to the effect on profit as
well as the effect of financial assets and liabilities denominated in foreign currencies qualified as either cash flow hedges or net investment hedges.
Further details of the currency profile of borrowings are given in note 22.
81
The impact of interest rate risk on the Group's result is due to changes in interest rates on net floating rate cash and cash equivalents and
borrowings. At 31 August 2012, if interest rates on the Group's net floating rate cash and cash equivalents and borrowings had been 100 basis
points higher, a reasonably possible movement, with all other variables held constant, the effect on profit before taxation in the year would have
been a credit of £0.8m (2011: £0.8m). A reduction of 100 basis points would have the equal and opposite effect. There is no further impact on
shareholders' equity.
Liquidity risk
The Group manages its liquidity risk to ensure that sufficient resources are available for both short-term working capital and longer-term
strategic requirements. This is achieved through an appropriate mix of long and short-term borrowings and, as far as possible, the major part of
the Group’s total borrowings are managed so that they are drawn down using committed debt facilities which would not mature for at least one
year. The Group’s principal loan facilities are raised and managed centrally but are supplemented by local overdraft and working capital facilities.
Committed debt facilities principally comprise bank loans and private placements.
The maturity profile of non-derivative financial liabilities is as follows:
More than
five years
£m
Total
£m
144.0
9.9
10.3
0.8
2.0
13.8
96.2
1.1
162.0
-
146.0
23.7
268.5
1.9
165.0
113.1
162.0
440.1
145.5
11.2
15.1
0.7
5.1
11.1
38.7
1.0
217.0
-
150.6
22.3
270.8
1.7
172.5
55.9
217.0
445.4
The above analysis includes both principal and interest amounts.
31 August 2011
Trade and other payables (excluding statutory liabilities)
Bank loans
Other loans
Finance leases
Between
one and
five years
£m
Remuneration
31 August 2012
Trade and other payables (excluding statutory liabilities)
Bank loans
Other loans
Finance leases
Less than
one year
£m
Governance
The Group regularly monitors expected cash flows against availability of financing. Regular updating of business forecasts, including cash flows,
is a process embedded into the Group’s internal financial reporting routines. Forecasts are initially carried out at an individual operating unit
level, but are consolidated and reviewed by Group management. The availability of financing, headroom over existing facilities and forward
compliance with financial covenants are monitored against expected cash flows. The process takes into account the shorter-term liquidity needs
of individual operating units or territories as well as the availability of funding to fulfil longer-term strategic objectives such as major capital
expenditure or business acquisitions.
Business Review
Further details of the interest rate profile of borrowings are given in note 22.
Overview
Interest rate risk
The Group’s exposure to interest rate risk arises on floating rate borrowings and cash and cash equivalents. This is reviewed regularly and is
managed through the use of an appropriate mix of fixed rate and floating rate instruments, including the use of interest rate swaps, in response
to market conditions.
82
20. Financial risk management continued
The maturity profile of derivative financial assets/(liabilities) is as follows:
Less than
one year
£m
31 August 2012
Forward foreign currency contracts and options:
- outflow
- inflow
(29.3)
29.2
Between
one and
five years
£m
(0.3)
0.3
(0.1)
Currency swaps:
- outflow
- inflow
31 August 2011
Forward foreign currency contracts and options:
- outflow
- inflow
Currency swaps:
- outflow
- inflow
-
More than
five years
£m
Total
£m
-
(29.6)
29.5
-
(0.1)
(32.1)
31.9
(29.0)
27.2
(45.2)
38.0
(106.3)
97.1
(0.2)
(1.8)
(7.2)
(9.2)
(26.8)
26.7
(0.5)
0.5
-
(27.3)
27.2
(0.1)
-
-
(0.1)
(45.8)
44.2
(13.5)
9.8
(64.5)
54.8
(123.8)
108.8
(1.6)
(3.7)
(9.7)
(15.0)
The above analyses for non-derivative and derivative financial instruments show the contractual undiscounted cash flows based on the earliest
date that the Group may be required to settle the instrument.
Credit risk
Credit risk principally arises on short-term deposits, derivative financial instruments and trade and other receivables.
The credit risk arising on short-term deposits and derivative financial instruments is managed through the use of counterparties with high credit
ratings assigned by international credit rating agencies.
The Group only trades with recognised, creditworthy third parties. It is the Group's policy that all customers who wish to take on credit terms are
subject to credit verification procedures. Receivable balances are monitored on an ongoing basis and the Group's exposure to bad debts is not
significant. The credit risk arising on trade receivables is spread across a large number of customers and across many countries. There are no
significant concentrations of credit risk.
The Group's maximum exposure to credit risk is equal to the carrying value of these instruments.
An analysis showing the ageing of trade receivables not impaired is given in note 17.
83
21. Capital management
Gearing ratio
Net debt (£m)
Total equity (£m)
Gearing ratio (%)
97.7
329.0
29.7
101.8
301.5
33.8
2012
2011
97.7
107.6
33.2
140.8
0.7
101.8
82.5
28.3
110.8
0.9
2012
2011
140.8
14.9
9.4
110.8
11.2
9.9
Gearing comprises net debt divided by total equity.
Net debt to EBITDA ratio
Net debt (£m)
Operating profit (£m)
Depreciation, amortisation and impairment charges (£m)
EBITDA (£m)
Net debt to EBITDA ratio
Net debt to EBITDA comprises net debt divided by operating profit before depreciation, amortisation and impairment charges.
EBITDA interest cover
EBITDA (£m)
Net interest payable on bank overdrafts and loans, other loans and bank deposits (£m)
Interest cover (times)
The Group’s principal loan covenants are: EBITDA interest cover (EBITDA being at least 3 times the net interest payable); and net debt to EBITDA
ratio (net debt being less than 3.5 times adjusted EBITDA).
At 31 August 2012, the Group comfortably complied with its loan covenants. EBITDA interest cover was 9.4 times (2011: 9.9 times) whilst net debt
to reported EBITDA was 0.7 times (2011: 0.9 times). In addition, for compliance with loan covenants, reported EBITDA is adjusted for, inter alia,
acquisitions and non-cash items, therefore, the measures improve when adjusted for these items.
Current
Bank loans
Other loans
Obligations under finance leases
Total borrowings
2011
£m
9.9
0.3
0.8
10.6
5.5
0.7
11.0
16.8
11.0
183.4
1.0
10.8
177.6
0.9
195.4
189.3
206.4
206.1
Non-current
Bank loans
Other loans
Obligations under finance leases
2012
£m
22. Borrowings
Remuneration
EBITDA interest cover comprises operating profit before depreciation, amortisation and impairment charges divided by net interest payable on
bank overdrafts and loans, other loans and bank deposits.
Governance
2011
Business Review
2012
Overview
The primary objective of the Group's capital management of total equity and net debt is to ensure that it maintains healthy capital ratios in order to
support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares and vary the maturity profile of its borrowings. The Group monitors capital using the following indicators:
84
22. Borrowings continued
Bank loans principally comprise £16.5m (2011: £21.4m) drawn down under committed revolving bank credit facilities expiring between May 2013
and April 2017.
Other loans principally comprise US dollar private placements (Senior Guaranteed Loan Notes) as follows:
Maturity
Interest rate
Principal
1 June 2012
1 June 2017
1 September 2021
1 September 2021
1 September 2023
7.29%
5.78%
5.12%
5.27%
5.42%
US$6.8m
US$90.0m
US$80.0m
US$55.0m
US$65.0m
2012
£m
2011
£m
56.6
50.3
34.6
40.9
4.2
55.2
49.1
33.7
39.9
182.4
182.1
$27.2m (£17.1m) of the 2017 private placement has been swapped into sterling and this sterling balance then swapped into euros, resulting in an
underlying euro borrowing of €20.0m at a fixed rate of 5.05% which matures on 1 June 2017.
$44.7m (£28.1m) of the 2023 private placement has been swapped into sterling and this sterling balance then swapped into Australian dollars,
resulting in an underlying Australian dollar borrowing of AUD$45.0m at a fixed rate of 8.43% which matures on 1 September 2023.
Arrangement fees of £0.7m (2011: £0.7m) are being amortised over the lives of the respective loans.
Included within other loans is an amount of £1.3m representing the estimated financial obligation under a cooperative joint venture contract in
Shanghai Fenner Conveyor Belting Co. Limited in China. In the prior year, an amount of £0.8m in respect of this was included within noncontrolling interests in equity and this has been reclassified during the year. In addition, the estimated value of the liability has been reassessed
at 31 August 2012 and this resulted in an amount of £0.5 being charged within finance costs in the consolidated income statement.
Bank balances are stated net where a legal right of offset exists.
Future minimum lease payments under finance leases, together with the present value of lease obligations, are analysed as follows:
2012
£m
Minimum lease payments:
Less than one year
After one year but not more than five years
Finance charges
Present value of finance lease obligations
2011
£m
0.8
1.1
0.7
1.0
1.9
(0.1)
1.7
(0.1)
1.8
1.6
The present value of finance lease obligations comprises £0.8m (2011: £0.7m) due in less than one year and £1.0m (2011: £0.9m) due after one
year but not more than five years.
85
The interest rate and currency profile of borrowings, after currency swaps, is as follows:
Total
£m
0.7
0.3
12.4
11.4
136.5
15.9
29.2
-
137.2
16.2
41.6
11.4
24.8
181.6
206.4
0.6
13.1
11.1
137.2
16.7
27.4
-
137.8
16.7
40.5
11.1
24.8
181.3
206.1
Business Review
31 August 2011
US dollar
Euro
Australian dollar
Other currencies
Fixed
rate
£m
Overview
31 August 2012
US dollar
Euro
Australian dollar
Other currencies
Floating
rate
£m
Fixed rate borrowings principally relate to the US dollar private placements and related currency swaps. The interest rates on floating rate
borrowings are principally linked to LIBOR or similar local currency rates.
Current borrowings
Non-current borrowings
2012
2011
Carrying
amount
£m
Fair
value
£m
Carrying
amount
£m
Fair
value
£m
11.0
195.4
11.0
217.6
16.8
189.3
17.0
206.1
206.4
228.6
206.1
223.1
At 31 August 2012, the Group had available £106.2m (2011: £146.6m) of undrawn committed borrowing facilities which expire between May 2013
and April 2017.
Remuneration
The fair value of fixed rate borrowings represents the value of replacing the existing fixed rate liabilities at the balance sheet date with borrowings
with similar terms to the remaining life of the loans. The fair value of all other floating rate borrowings approximates to their carrying amounts
where rates are reset to market rates at intervals of less than one year.
Governance
The carrying amount and fair value of borrowings is as follows:
Non-current borrowings of £0.4m (2011: £0.5m) are secured on specific freehold property.
86
23. Derivative financial instruments and hedging
Non-current
Currency swaps:
- Cash flow hedges
- Net investment hedges
Current
Forward foreign currency contracts and options - held for trading
Currency swaps:
- Net investment hedges
Analysed as:
Derivative financial instruments at fair value through profit and loss
Derivative financial instruments used for hedging
Assets
Liabilities
Net
2012
£m
2011
£m
2012
£m
4.5
-
4.7
-
(5.2)
(7.2)
4.5
(5.2)
4.7
(7.2)
4.5
4.7
(5.2)
(7.2)
(0.7)
(2.5)
-
-
-
(0.1)
-
(0.1)
0.5
0.1
-
(0.8)
0.5
(0.7)
0.5
0.1
-
(0.9)
0.5
(0.8)
Assets
2011
£m
2012
£m
Liabilities
2012
£m
2011
£m
2012
£m
5.0
4.8
(5.2)
5.0
4.8
(5.2)
2011
£m
Net
2012
£m
2011
£m
(0.1)
(8.0)
(0.2)
(0.1)
(3.2)
(8.1)
(0.2)
(3.3)
2011
£m
The fair value of derivative financial instruments is equal to the carrying amount. The fair value of forward foreign currency contracts represents the
gain or loss resulting from translation of the contracts using forward rates at the balance sheet date compared to actual contract rates. The fair value
of interest rate swaps, currency swaps and forward foreign currency options represents the market value of a comparable instrument at the balance
sheet date.
All derivative financial instruments are measured at fair value using observable inputs (level 2 inputs per the fair value hierarchy of IFRS 7).
Forward foreign currency contracts and options
The gain on forward foreign currency contracts and options of £0.1m (2011: loss of £0.2m) has been recognised within administrative expenses in
the consolidated income statement.
Currency swaps
The currency swaps are principally in respect of US dollars that have been swapped into sterling and this sterling balance then swapped into
euros and Australian dollars as detailed in note 22. The gain of £3.0m (2011: loss of £4.9m) is recognised as a cash flow hedge loss of £0.2m
(2011: £0.2m) and a net investment hedge gain of £3.2m (2011: loss of £4.7m) in the hedging reserve in other comprehensive income.
Interest rate swaps
An interest rate swap on US bank loans of $40.0m expired in 2011. The gain of £1.7m in 2011 is recognised as a cash flow hedge gain in the
hedging reserve in other comprehensive income.
Hedging
Group financial instruments denominated in euros, Australian dollars and US dollars are designated as hedges of the net investment in overseas
subsidiaries. The overall gain on translation to sterling at the year end of £3.2m (2011: loss of £3.0m) is recognised as a net investment hedge
gain in the hedging reserve in other comprehensive income. This comprises a gain of £3.2m (2011: loss of £4.7m) in respect of derivative financial
instruments and a loss of £nil (2011: gain of £1.7m) in respect of borrowings.
The overall cash flow hedge loss of £0.2m (2011: gain of £1.5m) recognised in the hedging reserve in other comprehensive income is in respect of
derivative financial instruments.
No ineffectiveness in respect of cash flow hedges or net investment hedges has been recognised in the consolidated income statement.
87
24.
80.7
3.4
16.1
47.2
91.4
4.0
12.9
41.2
147.4
149.5
2.0
5.1
Non-current
Accruals and deferred income
Trade and other payables are non-interest bearing. There is no material difference between the carrying amount and fair value of trade and
other payables.
25. Post-retirement benefits
Business Review
2011
£m
Overview
Current
Trade payables
Taxes and social security
Other payables
2012
£m
The Group operates a number of defined benefit post-retirement schemes for qualifying employees in operations around the world. The assets of
the schemes are held in separate trustee-administered funds. The cost of the schemes are assessed in accordance with the advice of
independent qualified actuaries using the projected unit method.
The principal assumptions used to determine the assets and liabilities of the schemes are as follows:
2012
2011
UK
scheme
Overseas
schemes
UK
scheme
Overseas
schemes
4.0%
2.5%
2.0%
3.5%
3.2% - 5.0%
2.0%
5.5%
3.1%
2.6%
4.1%
4.3% - 5.5%
2.0%
2.0% - 4.5%
2.5%
1.8%
1.8%
3.0%
2.0%
2.1%
4.6% - 6.0%
3.2% - 6.0%
7.4%
3.4%
0.5%
6.0% - 6.3%
5.3% - 6.0%
The principal assumptions of the schemes are determined using appropriate expert advice and available market data. The assumptions of the
overseas schemes are given as a range of values in respect of the individual schemes. The range of values is a consequence of the diversity of
territories in which the Group operates defined benefit schemes.
6.3%
2.3%
0.5%
2.0% - 4.5%
Remuneration
Discount rate
Inflation rate - RPI
Inflation rate - CPI
Rate of increase in salaries
Rate of increase in benefits in payment subject to Limited Price Indexation increases:
- capped at 5.0% (based on RPI)
- capped at 2.5% (based on RPI)
- capped at 3.0% (based on CPI)
Expected rate of return on assets of the schemes:
- Equity
- Bonds
- Cash
Governance
The principal scheme is the Fenner Pension Scheme which is based in the UK. The most recent triennial valuation of the Fenner Pension
Scheme was carried out as at 31 March 2011. The actuarial valuations for all schemes were updated as at 31 August 2012 by independent
qualified actuaries.
88
25. Post-retirement benefits continued
The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality
tables, with adjustments to reflect the schemes' actual mortality experience. For the Fenner Pension Scheme, an increased allowance for future
improvement in longevity has also been made. The assumptions used for the remaining life expectancy are as follows:
2012
Current pensioner at age 65:
- men
- women
Future pensioner at age 65 (current age 45):
- men
- women
2011
UK
scheme
Overseas
schemes
UK
scheme
Overseas
schemes
21 years
24 years
19 - 21 years
21 - 23 years
21 years
24 years
18 - 20 years
21 - 23 years
23 years
26 years
19 - 23 years
21 - 24 years
23 years
26 years
18 - 22 years
21 - 24 years
The fair value of assets of the schemes are as follows:
2012
2011
UK
scheme
£m
Overseas
schemes
£m
Total
£m
UK
scheme
£m
Overseas
schemes
£m
Total
£m
87.6
3.9
23.6
-
4.5
24.7
0.9
92.1
28.6
23.6
0.9
93.3
3.4
10.7
-
4.3
21.3
0.8
97.6
24.7
10.7
0.8
115.1
30.1
145.2
107.4
26.4
133.8
UK
scheme
£m
Overseas
schemes
£m
Total
£m
UK
scheme
£m
Overseas
schemes
£m
Equity
Bonds
Cash
Other
Amounts charged/(credited) to the income statement are as follows:
2012
Current service cost
Interest on obligations
Expected return on assets of the schemes
2011
Total
£m
0.9
7.0
(7.0)
0.7
1.6
(1.2)
1.6
8.6
(8.2)
1.1
6.5
(6.5)
0.9
1.5
(1.1)
2.0
8.0
(7.6)
0.9
1.1
2.0
1.1
1.3
2.4
The current service cost is classified within administrative expenses and the interest on obligations and expected return on assets of the
schemes are classified as notional interest within finance costs in the consolidated income statement.
The actual return on assets of the schemes is a gain of £16.2m (2011: £10.8m).
Actuarial gains and losses are recognised in full in the statement of comprehensive income in the period in which they are incurred. These
amounted to a loss of £21.1m (2011: gain of £9.8m). The cumulative amount of actuarial losses recognised in other comprehensive income since
1 September 2004 is £29.9m (2011: £8.8m).
Amounts recognised as retirement benefit obligations in the balance sheet are as follows:
2012
UK
scheme
£m
Present value of obligations
Fair value of assets of the schemes
Unrecognised past service cost
Overseas
schemes
£m
2011
Total
£m
Overseas
schemes
£m
Total
£m
(151.0)
115.1
-
(43.1)
30.1
0.7
(194.1)
145.2
0.7
(132.3)
107.4
-
(34.0)
26.4
0.8
(166.3)
133.8
0.8
(35.9)
(12.3)
(48.2)
(24.9)
(6.8)
(31.7)
The present value of obligations includes £0.5m (2011: £0.8m) in respect of schemes that are wholly unfunded.
89
UK
scheme
£m
Movements in the present value of obligations are as follows:
Overseas
schemes
£m
Total
£m
33.6
0.9
1.5
(3.4)
0.4
(1.0)
2.0
168.3
2.0
8.0
(6.6)
0.7
(8.1)
2.0
At 1 September 2011
Actuarial losses
Employee contributions
Benefits paid
Settlements
132.3
0.9
7.0
17.5
0.3
(7.0)
-
34.0
0.7
1.6
11.6
0.4
(1.2)
(0.9)
(3.1)
166.3
1.6
8.6
29.1
0.7
(8.2)
(0.9)
(3.1)
At 31 August 2012
151.0
43.1
194.1
UK
scheme
£m
Overseas
schemes
£m
Total
£m
Movements in the fair value of assets of the schemes are as follows:
24.6
1.1
(3.0)
2.8
0.4
(1.0)
1.5
122.0
7.6
3.2
6.9
0.7
(8.1)
1.5
At 1 September 2011
Actuarial gains
Employer contributions
Benefits paid
Settlements
107.4
7.0
3.1
4.3
0.3
(7.0)
-
26.4
1.2
4.9
1.5
0.4
(1.2)
(0.9)
(2.2)
133.8
8.2
8.0
5.8
0.7
(8.2)
(0.9)
At 31 August 2012
115.1
30.1
145.2
Experience adjustments are as follows:
Deficit in the schemes
Experience gains/(losses) on liabilities of the schemes
Experience gains/(losses) on assets of the schemes
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
(194.1)
145.2
0.7
(166.3)
133.8
0.8
(168.3)
122.0
0.8
(153.7)
110.4
1.2
(135.3)
116.2
-
(48.2)
(31.7)
(45.5)
(42.1)
(19.1)
0.8
8.0
(5.5)
3.2
(1.1)
7.1
(1.1)
(12.6)
3.6
(16.9)
Present value of obligations
Fair value of assets of the schemes
Unrecognised past service cost
(2.2)
97.4
6.5
6.2
4.1
0.3
(7.1)
-
Remuneration
At 1 September 2010
Actuarial gains/(losses)
Employer contributions
Benefits paid
Governance
134.7
1.1
6.5
(3.2)
0.3
(7.1)
-
Business Review
At 1 September 2010
Actuarial gains
Benefits paid
Overview
UK
scheme
£m
90
25. Post-retirement benefits continued
The Group expects to contribute approximately £6.7m to its defined benefit schemes in the year ending 31 August 2013.
The expected rate of return on assets of the schemes and the discount rate have an impact on the retirement benefit obligations and the income
statement for 2013. The effect on the Group's principal scheme, the Fenner Pension Scheme in the UK, is shown in the table below.
1% increase
£m
Expected rate of return on assets of the scheme
Additional (credit)/charge to income statement in 2013
Discount rate
Additional charge/(credit) to income statement in 2013
(Decrease)/increase in retirement benefit obligations at 31 August 2012
1% decrease
£m
(1.2)
1.1
0.4
(17.8)
(0.6)
20.2
26. Share-based payments
The Group operates two equity-settled share-based payment schemes and one cash-settled scheme.
a) Fenner PLC 1996 Executive Share Option Scheme
Share options were granted to certain employees within the Group. The exercise price of options granted is set at the market price of the shares
on the date of the grant. The vesting period is generally 3 years. If the options remain unexercised after a period of 10 years from the date of the
grant the options expire. Options can only be exercised upon satisfaction of performance criteria. This requires that the overall growth of the
Group’s earnings per share before amortisation of intangible assets acquired and exceptional items over a consecutive three year period exceeds
the growth in the UK Retail Price Index over the same period by at least 9%. The last grant of shares under the Executive Share Option Scheme
was made in November 2004.
Details of movements in outstanding share options are as follows:
Options
number
Weighted
average
exercise price
pence
20,406
123.5
Dates exercisable
Options
number
Option price
pence
2007 to 2014
20,406
123.5
At 1 September 2010, at 1 September 2011 and at 31 August 2012
At 31 August 2012, 20,406 (2011: 20,406) options were exercisable.
The following share options were outstanding at 31 August 2012:
The weighted average contractual life of outstanding share options at 31 August 2012 is 2.2 years.
The fair value of awards made under the Executive Share Option Scheme is measured using the Binomial option-pricing model. The following
assumptions were used for each set of outstanding options granted after 7 November 2002:
Grant date
15 November
2004
Share price at date of grant
Fair value of options granted
Exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
130.5p
28p
123.5p
27%
6 years
4.6%
4.5%
Expected volatility is determined by reference to the historical volatility of the Company’s share price for a six year period prior to the grant date.
91
For awards made between 2007 and 2009, the proportion of the conditional share awards that vest is based on the Group’s Total Shareholder
Return (“TSR”) over the performance period compared to the TSR of the comparator group.
Details of movements in conditional awards under the Performance Share Plan are as follows:
Shares
number
2,281,618
385,080
306,661
(133,701)
(200,365)
(280,974)
At 1 September 2011
Conditional awards during the year
Dividend roll up awards applied
Final awards during the year
Lapsed during the year
2,358,319
422,515
27,360
(665,058)
(882,938)
At 31 August 2012
1,260,198
The following conditional awards, including dividend roll up awards, were outstanding at 31 August 2012:
Shares
number
Date of conditional awards
426,445
401,863
431,890
1,260,198
The fair value of awards made under the Performance Share Plan is measured using the Monte Carlo simulation approach. The following
assumptions were used for each set of conditional awards:
17 November
2010
16 November
2011
184.5p
144p
61%
3 years
1.7%
287.3p
199p
63%
3 years
1.5%
370.0p
254p
59%
3 years
0.3%
Expected volatility is determined by calculating the historical volatility of the Company’s share price for a three year period from the conditional
award date.
Share price at date of conditional awards
Fair value of shares awarded
Expected volatility
Expected life
Risk free rate
18 November
2009
18 November 2009
17 November 2010
16 November 2011
Remuneration
Dividend roll ups have been applied since 2008 in line with the PSP Rules. They accrue over the Plan Cycle and are added to the original
conditional award before the final award and allotment of shares is made.
Governance
At 1 September 2010
Forfeited during the year
Business Review
For awards made from 11 November 2010, the proportion of the conditional share awards that vest is based on a combination of the TSR
measure and an earnings per share (“EPS”) measure. The EPS measure accounts for 33% of the final allocation on vesting and the TSR measure
for 67%. The EPS performance target is set against underlying EPS growth in the Company measured over the three years from the end of the
financial year preceding the year in which the award was made.
Overview
b) Performance Share Plan
Conditional awards of shares are made to certain employees within the Group. The conditional award is made to each employee at the start
of a three year performance period and is based on a percentage of the basic annual salary of each employee. The awards are subject to the
satisfaction of performance criteria.
92
26. Share-based payments continued
An amount of £0.9m (2011: £0.7m) has been recognised as a charge within administrative expenses in the consolidated income statement and a credit
to retained earnings within equity.
Further details of the Performance Share Plan can be found in the Board Remuneration Report on pages 43 to 49.
c) Shadow Performance Share Plan
Conditional awards of notional shares were made to certain employees within the Group between 2007 and 2009, the final conditional award
being on 19 November 2008. The rules and performance criteria were the same as the Performance Share Plan. Awards were settled in the form
of cash.
Details of movements in conditional awards under the Shadow Performance Share Plan are as follows:
Notional
shares
number
At 1 September 2010
700,000
(29,000)
(143,620)
(190,380)
At 1 September 2011
337,000
(8,000)
(152,492)
(176,508)
At 31 August 2012
There are no conditional awards outstanding at 31 August 2012.
An amount of £0.1m (2011: £0.7m) has been recognised as a charge within administrative expenses in the consolidated income statement. Liabilities
included within trade and other payables in the balance sheet amounted to £nil (2011: £0.5m).
93
-
27. Provisions
Movements in provisions are as follows:
At 31 August 2012
0.2
(0.2)
-
Current
Non-current
Redemption
liability on
acquisitions
£m
Total
£m
19.3
(1.7)
0.8
0.5
0.3
14.0
(1.9)
0.2
1.0
1.7
(0.2)
37.8
0.3
(0.6)
(1.7)
(1.1)
0.2
1.5
1.7
0.1
4.2
19.2
14.8
38.2
2012
£m
2011
£m
9.4
28.8
12.4
25.4
38.2
37.8
28. Share capital
Movements in share capital allotted, called up and fully paid are as follows:
£m
At 1 September 2010
Issued in the year
192,072,262
680,732
48.0
0.2
At 1 September 2011
Issued in the year
192,752,994
665,058
48.2
0.2
At 31 August 2012
193,418,052
48.4
On 18 November 2011, 665,058 ordinary shares of 25p were issued under the Group’s Performance Share Plan, amounting to £0.2m.
The Company has one class of ordinary shares of 25p which carry no right to fixed income.
In the prior year, 200,365 ordinary shares of 25p were issued under the Group’s Performance Share Plan, amounting to £0.1m, and 480,367
ordinary shares of 25p were issued in connection with the acquisition of Multiseals Pte Limited, amounting to £0.1m.
Number
Remuneration
Provisions represent the best estimate of obligations at the balance sheet date. The restructuring costs provision principally related to remaining
obligations associated with prior year restructuring programmes. The property and environmental provision principally relates to onerous leases.
The provision for contingent and deferred consideration on acquisitions relates to the estimated value of earn-out payments and other obligations
based on the future performance of acquired businesses or other non-performance related deferred payments. The redemption liability on
acquisitions relates to the obligation in respect of put and call options in relation to the purchase of non-controlling interests in acquisitions.
Where these amounts are material, they have been discounted at rates between 2.8% and 7.2%, representing a suitable pre-tax rate based on
borrowings that match the maturity of the consideration being discounted, to reflect the risks associated with future cash flows. Provisions are
expected to be utilised within five years in respect of property and environmental, four years in respect of contingent and deferred consideration
of acquisitions and five years in respect of redemption liability on acquisitions.
Governance
4.3
0.3
(0.4)
-
Business Review
At 1 September 2011
New provisions charged to income statement during the year
Provisions utilised during the year
Provisions released during the year
Acquisition of businesses (note 33)
Movement in redemption liability in equity
Notional interest on the unwinding of discount
Notional finance charge on redemption liability
Property and
environmental
£m
Overview
Restructuring
costs
£m
Contingent
and deferred
consideration
on acquisitions
£m
94
29. Reserves
Included within retained earnings is a reserve for the Company’s own shares held by the Employee Share Ownership Plan Trust (“ESOP”) of
£0.1m (2011: £0.1m). The shares held by the ESOP may subsequently be awarded to employees under the Group’s share incentives schemes.
At 31 August 2012, the ESOP held 114,177 (2011: 114,177) of the Company’s shares. The market value of these shares was £0.4m (2011: £0.4m).
The exchange reserve comprises foreign exchange differences arising from the translation of the financial statements of foreign operations.
The hedging reserve comprises gains and losses on changes in the valuation of assets and liabilities designated as hedges.
The merger reserve relates to merger relief given on the excess of the value of shares issued over the nominal value in accordance with section
612 of the Companies Act 2006. In the prior year, an amount of £1.7m qualified for merger relief in respect of shares issued in connection with
the acquisition of Multiseals Pte Limited.
Distributable reserves relate to amounts in the retained earnings reserve to the extent that profits are realised.
30. Contingent liabilities
In the normal course of business the Group has given guarantees and counter indemnities in respect of commercial transactions.
The Group is involved as defendant in a small number of potential and actual litigation cases in connection with its business, primarily in North
America. The directors believe that the likelihood of a material liability arising from these cases is remote.
31. Operating lease commitments
Outstanding commitments for future minimum lease payments under non-cancellable operating leases fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2012
£m
2011
£m
10.4
22.3
27.2
9.6
20.9
29.0
59.9
59.5
Operating lease commitments principally comprise land and buildings in various operations across the Group, totalling £53.3m (2011: £52.5m).
Operating lease charges recognised in the income statement are shown in note 5.
32. Related party transactions
Key management personnel
Key management comprises the Group’s executive and non-executive directors and members of the Executive Committee. Remuneration of key
management is as follows:
2012
2011
£m
£m
Short-term employee benefits
Post-employment benefits
4.4
0.5
1.8
4.5
0.6
0.6
6.7
5.7
There were no other related party transactions to disclose.
33. Acquisitions
On 1 September 2011, the Group acquired the entire share capital of Transeals Pty Limited (“Transeals”), a privately owned company based in
Perth, Australia. Transeals manufactures and distributes seals used in hydraulic equipment, currently serving the western parts of Australia.
This strategic acquisition allows the Hallite operation in Australia, which is mainly east coast based, to develop its aftermarket presence in the
buoyant mining and oil and gas markets of Western Australia. The cash consideration was £8.1m.
On 1 December 2011, the Group acquired substantially all of the operating assets of the business being conducted under the name Allison
Custom Fabrication (“Allison”) from a group of related privately owned entities based in Pennsylvania, USA. Allison specialises in the design,
engineering, machining and metal fabrication of customised material handling equipment, primarily for the mining markets of Pennsylvania and
95
From the date of acquisition, Allison contributed £8.3m to Group revenue, £0.9m to Group operating profit before amortisation of intangible
assets acquired and a loss of £0.2m to Group operating profit. From the date of acquisition, Transeals contributed £4.5m to Group revenue, £0.8m
to Group operating profit before amortisation of intangible assets acquired and £0.4m to Group operating profit.
Details of the aggregate assets and liabilities acquired, based on exchange rates at the dates of completion, are given below.
Allison
Transeals
Prior year
acquisitions
Total
Provisional
fair value
£m
Fair
value
£m
Deferred
consideration
£m
Fair
value
£m
-
1.8
8.1
14.5
2.4
1.5
1.9
(1.0)
-
4.0
0.2
0.6
0.8
0.3
(0.5)
(0.1)
(1.0)
-
18.5
2.4
0.2
2.1
2.7
0.3
(1.5)
(0.1)
(1.0)
Total net assets
25.4
8.1
-
33.5
Consideration:
Cash consideration
Contingent and deferred consideration held as provisions
15.0
10.4
8.1
-
11.5
(11.5)
34.6
(1.1)
25.4
8.1
-
33.5
15.0
-
8.1
(0.3)
11.5
-
34.6
(0.3)
15.0
7.8
11.5
34.3
Cash paid per cash flow statement:
Cash consideration
Cash and cash equivalents acquired
Goodwill arising on acquisition principally represents the workforce and anticipated synergies gained through the acquisitions. Goodwill in
respect of the acquisition of Allison is deductible for tax purposes. Goodwill in respect of the acquisition of Transeals is not deductible for
tax purposes.
Where material, deferred consideration has been discounted using suitable pre-tax rates based on borrowings that match the maturity of the
consideration being discounted.
Provisional fair values of assets and liabilities represent the best estimate of the fair values at the dates of acquisition. As permitted by IFRS 3
(Revised) ‘Business Combinations’, these provisional amounts can be amended for a period of up to 12 months following acquisition if
subsequent information becomes available which changes the estimates of fair values at the dates of acquisition.
0.1
3.7
Remuneration
1.7
4.4
Governance
Goodwill
Intangible assets acquired:
- customer relationships
- non-compete agreements
- leases
Inventories
Current taxation
Deferred taxation
Business Review
If the acquisition of Allison had occurred on 1 September 2011, it is estimated that Group revenue would have been £833.9m, Group operating
profit before amortisation of intangible assets acquired would have been £119.8m and Group operating profit would have been £108.2m. The
acquisition of Transeals occurred on 1 September 2011. These amounts have been calculated by adjusting the results of the acquired businesses
to reflect the effect of the Group’s accounting policies as if they had been in effect from 1 September 2011.
Overview
West Virginia. This acquisition will strengthen the Fenner Dunlop Americas operation’s strategy of being the supplier of choice for engineered
conveyor solutions in the Americas and will enable mining customers to enjoy integrated solutions for improving the safety and total cost of
ownership of materials handling, in both underground and above ground applications. The initial cash consideration was £15.0m with contingent
and deferred consideration estimated at £10.4m, based on exchange rates at the date of completion.
96
34. Principal subsidiary undertakings
The principal subsidiary undertakings at 31 August 2012 were as follows:
Company
J H Fenner & Co Limited
Fenner International Limited
James Dawson & Son Limited
Hallite Seals International Limited
Hallite (France) Limited
FAST Group Houston, Inc
Hallite Seals Americas, Inc
Fenner Drives, Inc
Secant Medical, Inc
Xeridiem Medical Devices, Inc
Fenner Precision, LLC
Fenner Precision, Inc
Fenner Dunlop Conveyor Systems and Services, Inc
Fenner Dunlop Americas, Inc
Fenner Dunlop (Port Clinton), Inc
Fenner Dunlop (Toledo), LLC
Fenner Dunlop (Bracebridge), Inc
Hallite Seals (Canada) Limited
Conveyor Services, SA
Hallite Do Brasil - Technologia Em Vedações Limitada
Fenner Conveyor Belting (South Africa) (Pty) Limited
Fenner Dunlop Maroc SARL
Fenner Dunlop Australia Pty Limited
Fenner (Australia) Pty Limited
Fenner Dunlop Conveyor Services Pty Limited
Belle Banne Conveyor Services Pty Limited
Leading Edge Conveyor Services Pty Limited
Statewide Belting Service Pty Limited
Fenner Dunlop Whyalla Limited
rEscan International Pty Limited
Hallite Seals Australia Pty Limited
Fenner Conveyor Belting Private Limited
Shanghai Fenner Conveyor Belting Co. Limited
Dawson Polymer Products (Shanghai) Co. Limited
Fenner Sealing Technologies (Shanghai) Co. Limited
Dunlop Conveyor Belting (Shanghai) Co. Limited
Hallite Service (Suzhou) Co.Limited
Multiseals Pte Limited
Fenner Dunlop BV
Dunlop Service BV
Fenner Dunlop SL
Dichtelemente Hallite GmbH
Hallite Italia SRL
Fenner Dunlop Italia SRL
Fenner Dunlop Polska Sp. z o.o
Dunlop Conveyor Belting Polska Sp. z o.o
Country of
incorporation
% of issued
ordinary shares held
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Canada
Canada
Chile
Brazil
South Africa
Morocco
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
India
China
China
China
China
China
Singapore
Netherlands
Netherlands
Spain
Germany
Italy
Italy
Poland
Poland
*100
*100
*100
*100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
66
100
75
100
100
100
100
56
53
100
100
100
100
100
85
100
100
100
100
100
100
100
100
100
100
100
100
100
*Held directly by Fenner PLC
The above undertakings are engaged in manufacturing, distribution and servicing with the exception of Fenner International Limited which is an
investment company.
All subsidiary undertakings are consolidated within the Group financial statements.
A full list of Group companies is filed with the annual return to the Registrar of Companies.
97
35. Post balance sheet events
Overview
On 1 September 2012, the Group completed the acquisition of substantially all of the assets and liabilities of American Industrial Plastics, Inc (“AIP”), a
privately owned company based in Florida, USA. AIP is a precision machining company with the ability to machine advanced polymers for application in
the oil and gas and medical markets as well as manufacturing performance precision components for a range of niche applications including
aerospace. It will become part of the FAST operation. The initial cash consideration was £16.7m with contingent deferred amounts estimated at £6.3m.
On 3 September 2012, the Group completed the acquisition of 100% of the share capital of Norwegian Seals, a privately owned group of
companies with operations in Norway and the UK. Norwegian Seals manufactures and distributes performance-critical seals into the oil and gas
market, with particular emphasis on subsea, well head and down-hole applications. This strategic acquisition will allow the FAST operation to
exploit the North Sea market and enhance Norwegian Seals' ability to build its growing industry reputation and presence. The initial cash
consideration was £10.3m, excluding working capital adjustments, with contingent deferred amounts estimated at £5.7m.
Details of the provisional aggregate assets and liabilities acquired in respect of AIP, Norwegian Seals and Mandals are given below.
Governance
On 26 October 2012, the Group exchanged contracts to acquire 100% of the share capital of Australian Conveyor Engineering Pty Ltd ("ACE"), based
in New South Wales. The transaction is expected to complete at the end of November 2012. ACE specialises in supplying engineered conveyor
solutions for the design, manufacture and installation of high capacity conveyor systems for both surface and underground mining, with the
capability to take projects from the initial concept to the commissioned conveyor system. The acquisition furthers Fenner Dunlop's strategy of
being the supplier of choice for engineered conveyor solutions in Australia, offering mining customers integrated solutions for improving the safety
and total cost of materials handling. Business Review
On 3 September 2012, the Group completed the acquisition of 100% of the share capital of Mandals, a privately owned group of companies based in
Norway and Sweden. Mandals is a manufacturer of innovative lay-flat and speciality hoses for use in demanding applications and of circular looms
for the manufacture of the woven fabric used in the production of hoses. It is an acknowledged market leader in its industry, with products sold
around the world. The acquisition builds on the expertise of the AEP division, providing performance-critical applications to the agricultural,
infrastructure, potable water and oil and gas markets. The initial cash consideration was £12.5m, excluding capital working capital adjustments,
with contingent deferred amounts estimated at £1.3m.
£m
3.1
17.0
Total net assets
52.8
Consideration:
Cash consideration
Contingent and deferred consideration
39.5
13.3
23.5
3.5
1.1
6.2
5.9
2.9
(4.5)
(0.7)
(1.2)
(4.0)
Remuneration
Goodwill
Intangible assets acquired:
- customer relationships
- non-compete agreements
- brands and trademarks
Inventories
Finance leases
Current taxation
Deferred taxation
52.8
Provisional fair values of assets and liabilities represent the best estimate of the fair values at the dates of acquisition. As permitted by IFRS 3
(Revised) ‘Business Combinations’, these provisional amounts can be amended for a period of up to 12 months following acquisition if
subsequent information becomes available which changes the estimates of fair values at the dates of acquisition.
The information above has been presented in aggregate because the individual acquisitions are not material. No information is presented in
respect of the acquisition of ACE as the transaction has not yet completed.
Goodwill arising on acquisition principally represents the workforce and anticipated synergies gained through the acquisitions. Goodwill in
respect of the acquisition of AIP is deductible for tax purposes. Goodwill in respect of the acquisitions of Norwegian Seals and Mandals is not
deductible for tax purposes.
98
Independent Auditors’ Report to the members of Fenner PLC
We have audited the parent company financial statements of Fenner PLC for the year ended 31 August 2012 which comprise the Company
balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United
Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
Respective responsibilities of directors and auditors
As explained more fully in the Statement of directors’ responsibilities set out on pages 36 to 37, the directors are responsible for the preparation
of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an
opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in
writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that
the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition,
we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial
statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the parent company financial statements:
give a true and fair view of the state of the Company’s affairs as at 31 August 2012;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the Board Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
the information given in the Directors’ Report for the financial year for which the parent company financial statements are prepared is
consistent with the parent company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
the parent company financial statements and the part of the Board Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the Group financial statements of Fenner PLC for the year ended 31 August 2012.
Richard Bunter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Hull
7 November 2012
99
Company balance sheet
at 31 August 2012
4
5
3.6
77.7
3.5
77.1
81.3
80.6
154.5
16.0
154.9
6.3
170.5
(12.1)
161.2
(12.7)
158.4
148.5
239.7
-
229.1
(0.2)
239.7
228.9
Current assets
Debtors
Cash at bank and in hand
6
Creditors: amounts falling due within one year
7
Net current assets
Total assets less current liabilities
Provisions for liabilities
8
Net assets
9
10
10
10
10
48.4
51.7
1.2
76.3
62.1
48.2
51.7
1.2
76.3
51.5
Total shareholders' funds
11
239.7
228.9
The financial statements on pages 100 to 106 were approved by the Board of Directors on 7 November 2012 and signed on its behalf by:
M S Abrahams
Chairman
Remuneration
Capital and reserves
Called up share capital
Share premium account
Revaluation reserve
Merger reserve
Profit and loss account
Governance
2011
£m
Business Review
2012
£m
Overview
Fixed assets
Tangible assets
Investments
Notes
R J Perry
Registered Number: 329377
100
Notes to the Company financial statements
1.
Significant accounting policies
Basis of preparation
The Company financial statements have been prepared on the going concern basis and in accordance with applicable accounting standards in
the United Kingdom and under the historical cost convention, as modified by the revaluation of certain tangible fixed assets.
In accordance with the exemptions allowed by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account.
The Company has taken advantage of the exemptions in FRS 8 ‘Related Party Transactions’ not to disclose related party transactions with other
members of Fenner PLC Group.
The principal accounting policies adopted for the year ended 31 August 2012, which have been consistently applied, are set out below.
Foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date,
monetary assets and liabilities are retranslated at the rates prevailing on the balance sheet date. Non-monetary items measured at historical
cost are not retranslated. Exchange differences arising on the settlement and retranslation of monetary items are recognised in the profit and
loss account in the period.
The Company operates equity-settled share schemes for certain employees across the Fenner PLC Group. The cost of share-based payments
is measured at fair value at the date of grant, excluding the effect of non market-based vesting conditions. The cost is recognised in the profit and loss
account on a straight-line basis over the vesting period with the corresponding amount credited to reserves, based on an estimate of the number
of shares that will eventually vest. The fair values are measured using the Binomial option-pricing model and the Monte Carlo simulation approach.
Where the Company grants options over its own shares to the employees of its subsidiaries, it recognises an increase in the cost of investment in
its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its subsidiaries’ financial statements, with the
corresponding credit being recognised directly in reserves.
Taxation
Taxation expense represents the sum of the current tax payable and deferred tax.
Current tax is the tax expected to be payable on taxable profit for the period using tax rates that have been enacted or substantively enacted by
the balance sheet date, together with any adjustments in respect of previous years. Taxable profit differs from profit as reported in the profit and
loss account because it excludes items of income or expense that are not taxable or deductible or are taxable or deductible in other years.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. It is determined
using the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse. Timing differences
are differences between taxable profits and results as stated in the financial statements that arise from the inclusion of gains and losses in tax
assessments in periods different from those in which they are recognised in the financial statements. Deferred tax assets are recognised only
when it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing
differences can be deducted. Deferred tax is not recognised when fixed assets are revalued unless by the balance sheet date there is a binding
agreement to sell the revalued asset. Deferred tax is measured on a non-discounted basis.
Dividends
Dividends proposed by the Board are recognised in the financial statements when they have been approved by shareholders at the AGM. Interim
dividends are recognised when they are paid.
Tangible fixed assets
Tangible fixed assets are stated at cost or valuation less accumulated depreciation and any accumulated impairment losses. Cost includes the
original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. In prior years,
certain freehold properties have been revalued by independent qualified professional valuers on the basis of open market value for their existing
use. As permitted by the transitional phase of FRS 15 ‘Tangible Fixed Assets’, these valuations have been frozen.
Freehold land is not depreciated. Depreciation on other assets is recognised in the profit and loss account on a straight-line basis over the
estimated useful life of the asset. Estimated useful lives most widely applied are as follows:
Freehold buildings
40 years
Investments
Investments are stated at cost or valuation less accumulated impairment losses.
101
2.
Auditors’ remuneration
3.
Dividends
Dividends paid or approved in the year
2011
£m
5.1
10.3
4.6
9.2
15.4
13.8
6.8
13.5
5.1
10.3
20.3
15.4
Business Review
Dividends neither paid nor approved in the year
2012
£m
Overview
There was no auditors' remuneration in the year (2011: £nil). Amounts borne by other Group undertakings are less than £0.1m (2011: less than
£0.1m).
The interim dividend for the year ended 31 August 2012 was paid on 5 September 2012. The proposed final dividend for the year ended
31 August 2012 is subject to approval by shareholders at the AGM. Consequently, neither has been recognised as liabilities at 31 August 2012.
If approved, the final dividend will be paid on 4 March 2013 to shareholders on the register on 1 February 2013.
Tangible assets
Freehold
property
£m
Cost or valuation
At 1 September 2011
Additions
Disposals
Governance
4.
5.3
0.2
(0.6)
4.9
Accumulated depreciation
At 1 September 2011
Charge for the year
Disposals
1.8
0.1
(0.6)
1.3
Net book value
At 31 August 2012
3.6
At 31 August 2011
3.5
1.2
1.2
2.5
4.9
The historical cost of tangible fixed assets is £4.2m (2011: £4.6m) with accumulated depreciation of £1.8m (2011: £2.3m).
Freehold property includes land at a cost or valuation of £1.6m (2011: £1.7m) which is not subject to depreciation.
Cost or valuation comprises
Cost
Valuation:
- 1998
- 1999
At 31 August 2012
Remuneration
At 31 August 2012
102
Notes to the Company financial statements continued
5.
Investments
Subsidiary
undertakings
£m
Cost
At 1 September 2011
Capital contribution relating to share-based payments
167.5
0.6
At 31 August 2012
168.1
Accumulated impairment losses
At 1 September 2011 and at 31 August 2012
90.4
Net book value
At 31 August 2012
77.7
At 31 August 2011
77.1
The carrying value of investments is reviewed annually. Forecast cash flows are discounted using the Group’s pre-tax weighted average cost of
capital of 10.7%. Cash flows are projected for one year using appropriate annual growth rates.
The capital contribution relating to share-based payments relates to conditional awards granted by the Company to employees of its subsidiary
undertakings.
Details of the principal subsidiary undertakings can be found in note 34 to the Group financial statements.
6.
Debtors
Amounts owed by Group undertakings
Group relief
Other debtors
2012
£m
2011
£m
154.5
-
154.5
0.1
0.3
154.5
154.9
Amounts owed by Group undertakings are unsecured and repayable on demand and relate to an interest bearing loan to a subsidiary undertaking
at a floating rate based on the Group’s bank borrowing rate.
7.
Creditors: amounts falling due within one year
Amounts owed to Group undertakings
Current taxation
2012
£m
2011
£m
12.0
0.1
12.0
0.4
0.3
12.1
12.7
Amounts owed to Group undertakings relate to amounts due to dormant subsidiary undertakings.
8.
Provisions for liabilities
Deferred
taxation
£m
At 1 September 2011
Credited to profit and loss account
At 31 August 2012
Deferred tax liabilities are all in respect of accelerated tax depreciation.
103
0.2
(0.2)
-
9.
Share capital
Movements in share capital allotted, called up and fully paid are as follows:
£m
At 1 September 2011
Issued in the year
192,752,994
665,058
48.2
0.2
At 31 August 2012
193,418,052
48.4
Overview
Number
On 18 November 2011, 665,058 ordinary shares of 25p were issued under the Group’s Performance Share Plan, amounting to £0.2m.
10. Reserves
Revaluation
reserve
£m
Merger
reserve
£m
Profit and
loss account
£m
At 1 September 2011
Profit for the year
Dividends paid
51.7
-
1.2
-
76.3
-
51.5
25.3
(15.4)
(0.2)
0.9
At 31 August 2012
51.7
1.2
76.3
62.1
Included within the profit and loss account is a reserve for the Company’s own shares held by the Employee Share Ownership Plan Trust (“ESOP”)
of £0.1m (2011: £0.1m). The shares held by the ESOP may subsequently be awarded to employees under the Group’s share incentives schemes.
At 31 August 2012, the ESOP held 114,177 (2011: 114,177) of the Company’s shares. The market value of these shares was £0.4m (2011: £0.4m).
Governance
Share premium
account
£m
Business Review
The Company has one class of ordinary shares of 25p which carry no right to fixed income.
The merger reserve relates to merger relief given on the excess of the value of shares issued over the nominal value in accordance with section
612 of the Companies Act 2006.
2011
£m
Profit for the year attributable to shareholders
Dividends paid
25.3
(15.4)
0.9
16.0
(13.8)
1.8
0.7
Movement in total shareholders’ funds in the year
Total shareholders’ funds at 1 September 2011
10.8
228.9
4.7
224.2
Total shareholders’ funds at 31 August 2012
239.7
228.9
12. Contingent liabilities
The Company has guaranteed the borrowings of certain subsidiary undertakings. At 31 August 2012, these borrowings amounted to £203.9m
(2011: £203.9m).
2012
£m
Remuneration
11. Reconciliation of movement in total shareholders’ funds
104
Notes to the Company financial statements continued
13. Share-based payments
The Company operates two equity-settled share-based payment schemes across the Fenner PLC Group.
a) Fenner PLC 1996 Executive Share Option Scheme
Share options were granted to certain employees within the Group. The exercise price of options granted is set at the market price of the shares
on the date of the grant. The vesting period is generally 3 years. If the options remain unexercised after a period of 10 years from the date of the
grant the options expire. Options can only be exercised upon satisfaction of performance criteria. This requires that the overall growth of the
Group’s earnings per share before amortisation of intangible assets acquired and exceptional items over a consecutive three year period exceeds
the growth in the UK Retail Price Index over the same period by at least 9%. The last grant of shares under the Executive Share Option Scheme
was made in November 2004.
Details of movements in outstanding share options are as follows:
Options
number
Weighted
average
exercise price
pence
20,406
123.5
Dates exercisable
Options
number
Option price
pence
2007 to 2014
20,406
123.5
At 1 September 2011 and at 31 August 2012
At 31 August 2012, 20,406 (2011: 20,406) options were exercisable.
The following share options were outstanding at 31 August 2012:
The weighted average contractual life of outstanding share options at 31 August 2012 is 2.2 years.
The fair value of awards made under the Executive Share Option Scheme is measured using the Binomial option-pricing model. The following
assumptions were used for each set of outstanding options granted after 7 November 2002:
Grant date
15 November
2004
Share price at date of grant
Fair value of options granted
Exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
130.5p
28p
123.5p
27%
6 years
4.6%
4.5%
Expected volatility is determined by reference to the historical volatility of the Company’s share price for a six year period prior to the grant date.
b) Performance Share Plan
Conditional awards of shares are made to certain employees within the Group. The conditional award is made to each employee at the start
of a three year performance period and is based on a percentage of the basic annual salary of each employee. The awards are subject to the
satisfaction of performance criteria.
For awards made between 2007 and 2009, the proportion of the conditional share awards that vest is based on the Group’s Total Shareholder
Return (“TSR”) over the performance period compared to the TSR of the comparator group.
For awards made from 11 November 2010, the proportion of the conditional share awards that vest is based on a combination of the TSR
measure and an earnings per share (“EPS”) measure. The EPS measure accounts for 33% of the final allocation on vesting and the TSR measure
for 67%. The EPS performance target is set against underlying EPS growth in the Company measured over the three years from the end of the
financial year preceding the year in which the award was made.
105
Details of movements in conditional awards under the Performance Share Plan, in respect of employees of the Company, are as follows:
Shares
number
1,416,488
168,264
14,375
(502,749)
(434,339)
At 31 August 2012
662,039
The following conditional awards, including dividend roll up awards, were outstanding at 31 August 2012:
Shares
number
Date of conditional awards
Business Review
Dividend roll ups have been applied since 2008 in line with the PSP Rules. They accrue over the Plan Cycle and are added to the original
conditional award before the final award and allotment of shares is made.
300,229
189,813
171,997
18 November 2009
17 November 2010
16 November 2011
The fair value of awards made under the Performance Share Plan is measured using the Monte Carlo simulation approach. The following
assumptions were used for each set of conditional awards:
17 November
2010
16 November
2011
184.5p
144p
61%
3 years
1.7%
287.3p
199p
63%
3 years
1.5%
370.0p
254p
59%
3 years
0.3%
Expected volatility is determined by calculating the historical volatility of the Company’s share price for a three year period from the conditional
award date.
Remuneration
18 November
2009
Governance
662,039
Share price at date of conditional awards
Fair value of shares awarded
Expected volatility
Expected life
Risk free rate
Overview
At 1 September 2011
Further details of the Performance Share Plan can be found in the Board Remuneration Report on pages 43 to 49.
106
Five Year Summary of the Group
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
Revenue
830.6
718.3
552.5
499.4
437.8
Operating profit before amortisation of intangible assets
acquired and exceptional items
Exceptional items
118.8
(11.2)
-
91.4
(8.9)
-
57.0
(7.7)
-
41.3
(6.8)
(17.4)
49.3
(2.1)
(3.4)
Operating profit
Net finance costs
107.6
(19.0)
82.5
(12.9)
49.3
(12.1)
17.1
(11.5)
43.8
(7.5)
Taxation
88.6
(26.2)
69.6
(20.2)
37.2
(10.7)
5.6
(1.0)
36.3
(10.4)
Profit for the year
62.4
49.4
26.5
4.6
25.9
Earnings per share:
Underlying – Basic (before amortisation of intangible assets
acquired, exceptional items and notional interest)*
Basic
36.1p
30.3p
28.1p
24.6p
17.9p
14.6p
12.8p
2.6p
17.7p
15.5p
Dividends paid to Company’s shareholders
Dividends per ordinary share**
15.4
10.5p
13.8
8.0p
11.5
7.2p
11.5
6.6p
9.9
6.6p
Capital expenditure
28.9
15.6
10.5
34.3
63.7
Total equity
329.0
301.5
256.9
195.5
205.9
Net debt
(97.7)
(101.8)
(110.4)
(165.4)
(97.6)
Gearing
Average number of employees (number)
29.7%
4,970
33.8%
4,548
43.0%
3,938
84.6%
3,874
47.4%
3,924
*The 2008 comparative has been restated to remove the notional interest on the unwinding of discount on provisions from underlying earnings
per share.
**Dividends per ordinary share are stated in respect of the period to which the dividends relate. Under International Financial Reporting
Standards, this is not the same as the period in which the dividends are recognised in the financial statements.
107
The 76th Annual General Meeting of the Company will be held at The Oxford & Cambridge Club, 71 Pall Mall, London SW1Y 5HD, on
16 January 2013 at 10.30 am when the following business will be proposed:
Overview
Business Review
Ordinary business
1 To receive the Directors’ Report and financial statements of the Group for the financial year ended 31 August 2012 together with the
Independent Auditors’ Report.
2 To approve the Board Remuneration Report contained in the Annual Report for 2012.
3 To declare a dividend.
4 To re-elect director.
9 To elect director.
10 To re-appoint the auditors.
11 To authorise the directors to determine the auditors’ remuneration.
Special business
12 To authorise the directors to allot shares.
13 To empower the directors to allot shares for cash.
14 To authorise the Company to buy back its own shares.
15 To reduce the notice period required for general meetings.
Note
This is a summary of the Notice of Annual General Meeting and shareholders should refer to the accompanying document which contains
the full text of the Notice of Annual General Meeting together with an explanatory letter from the Chairman of the Company.
The table below details the amounts of interim and final dividends declared in respect of each of the last five years.
Interim
dividend
pence
2012
2011
2010
2009
2008
3.50
2.65
2.40
2.20
2.20
Final
dividend
pence
7.00*
5.35
4.80
4.40
4.40
Total
dividend
pence
10.50*
8.00
7.20
6.60
6.60
Financial Calendar
Registrars
Capita Registrars, Huddersfield
Annual General Meeting – 16 January 2013
Remuneration
* Proposed
Advisors
Governance
Dividend Information
Half Year End – 28 February 2013
Half Year Results – April 2013
Year End – 31 August 2013
Preliminary Results – November 2013
Independent Auditors
PricewaterhouseCoopers LLP, Hull
Brokers
Jefferies Hoare Govett, London
Citigroup, London
Investment Bankers
N.M. Rothschild & Sons Limited, Leeds
Fenner, Fenner Drives, Fenner Precision, Hallite, James Dawson, Apex Fenner, B-LOC, Trantorque, Nu-T-Link, Tuff Breed, UsFlex and PowerMax are Registered
Trademarks of the Fenner Group.
Principal Bankers
Barclays Bank PLC, Leeds
Lloyds Banking Group plc, Hull
HSBC Bank plc, Leeds
Santander UK plc, London
Principal Solicitors
Addleshaw Goddard, Leeds
Ashurst, London
DLA Piper, Sheffield
Hunt & Hunt, Victoria, Australia
Rollits, Hull
Shumaker, Loop & Kendrick, Toledo, USA
Secant, Prodesco, CDI, EGC, Xeridiem, Solesis and ECS are Trademarks of the Fenner Group.
Dunlop is used under licence.
108

Annual Report

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